Is there an order for deductions? Pension, Tax, NI, etc.

[UKSBD]

I'm posting this in time out as it is a personal question rather than business.

Is there an order for the deductions from income or is the same starting point used?

Assuming all allowance used and rounding tax rates rather than actual ones

£2000 income
20% tax, 10% NIC, 5% pension

Is the same £2000 used for all calculations

2000 - 20% = £400 in tax

2000 - 10% = £200 in NIC

2000 - 5% = £100 in Pension

= £700 total deductions


or is there an order used?

ie.
2000 - 20% = £400 in tax

1600 - 10% = £160 in NIC

1440 - 5% = £72 in Pension

= £632 total deductions

 

[Jeff FV]

Pension contributions are tax free - ie you pay in your pension contributions before tax (and in some instances) National Insurance. This is what makes them such a good investment

In your example, from £2000 earned, 5% - ie £100 - is paid into your pension, so your taxable income is now £1,900, reducing the amount of tax you pay. If the company operates a salary sacrifice scheme you won’t pay NI on that £100 either.

When you come to take your pension, the first 25% is tax free, plus when earning in many, but not all, cases, you may be paying the higher 40% tax rate, but when you take your pension you are not earning as much so only pay the lower, standard, rate of tax (on the 75% that is taxable)

Bottom line: pension contributions come off first, before any tax calculations (NI is dependent on whether or not in a salary sacrifice scheme)

 

[UKSBD]

Pension contributions are tax free - ie you pay in your pension contributions before tax (and in some instances) National Insurance. This is what makes them such a good investment

In your example, from £2000 earned, 5% - ie £100 - is paid into your pension, so your taxable income is now £1,900, reducing the amount of tax you pay. If the company operates a salary sacrifice scheme you won’t pay NI on that £100 either.

When you come to take your pension, the first 25% is tax free, plus when earning in many, but not all, cases, you may be paying the higher 40% tax rate, but when you take your pension you are not earning as much so only pay the lower, standard, rate of tax (on the 75% that is taxable)

Bottom line: pension contributions come off first, before any tax calculations (NI is dependent on whether or not in a salary sacrifice scheme)

Thanks,

ignoring all the salary sacrifice, and other things as I just want to know the order.

We've determined that Pension is 1st, what is Next tax or Nic?

IE.

£2000 less 5% pension leaves £1900

Do you then take of the tax 1st or the NIC?

 

[Jeff FV]

I believe, but I’m not 100% sure , I think they both (income tax & NI) come off the same number/at the same time.

Ie you would take 20% off the £1900 for tax, and 10% off the £1900 for NI (this assumes you are paying into your pension via salary sacrifice, else you would take the 10% for NI off the £2000)

HtH
J

 

[numbersrule]

There is no priority order as such.
The tax and NI is based on the relevant thresholds and the income.
You don't pay less NI because somehow tax has already been taken so NI is due on less. No. That's not how it works.
You see, the Tax Man has thought of that. He has realised that he gets more money if somehow everything is taken 'simultaneously'.