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Tax savings: Bike to Work and pension

  • 17-07-2021 8:40pm
    #1
    Registered Users Posts: 18 Dedalus1


    I'm 31 and I'm on 42k pa. I put the max percentage into my pension. I'm thinking of signing up to the bike to work scheme, but will the savings made on that compete with the money already being given to my pension?

    The difference between bike to work on the higher tax band and on the lower band are immense. If I'm giving so much to the pension, will this mean that contributions to bike to work will be on the lower tax bracket?



Comments

  • Registered Users Posts: 58,830 ✭✭✭✭ namenotavailablE


    My spreadsheet might help:http://taxcalc.eu/monthlyss/Employee%20PAYE%20calculator.xlsm

    You enter pension deductions and cycle to work deductions using the 'Enter optional information' section. You need to allow macros to run for it to work however- it only works in Excel 2010 and greater in a Windows environment.



  • Registered Users Posts: 643 ✭✭✭ howardmarks


    salary sacrifice

    Wages reduced by bike cost in 12 month period. As in 42 k less 1.5k for bike.


    Everything tax pension etc calculated on reduced figures



  • Registered Users Posts: 18 Dedalus1


    Ok, if I follow: the salary sacrifice comes into play before pension deductions are taken. This will then mean than the cycle to work scheme operates entirely on my higher band tax rate.



  • Registered Users Posts: 643 ✭✭✭ howardmarks


    Pretty much. You are foregoing/giving up part of your gross salary to get a bike. By reducing the gross taxable salary it will be relieved at the higher rate assuming single and 35k odd 20% rate band



  • Registered Users Posts: 58,830 ✭✭✭✭ namenotavailablE


    Howard- can you clarify if this comment is definitely correct: "Everything tax pension etc calculated on reduced figures"

    The 5th FAQ on this page [https://support.hubex.ie/hc/en-ie/articles/360044040031] says that pension is on the full salary rather than the salary as reduced. You definitely save tax, PRSI and USC using salary sacrifice (basically calculate these on the reduced salary) but the pension contributions would seem to be calculated on the non-reduced salary.



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  • Registered Users Posts: 2,774 ✭✭✭ ari101


    Pension should still be calculated on gross salary before tax saver deduction, so there should be no change to that amount.

    However, if you are putting max employee pension away, being 20% for 30-39 age range, and assuming standard rate cut off, you are already reducing the amount you pay PAYE on to below the 40% cut off (41k - 20% = 32.8k taxable for PAYE vs. std cut off 35.3k).

    So buying a bike will only save you 28.5% (20% PAYE, 4% PRSI, 4.5% USC) of what you spend.

    If you have other taxable additions or deductions or non standard bands/credits this may work out differently.



  • Registered Users Posts: 18 Dedalus1


    No I don't. I'm inclined to reduce my pension contributions for 12 months then.

    But it's ridiculous that nowhere states this definitively. I mean, even the bike to work savings calculator just asks you for your gross salary. It doesn't even say, and "What percentage are you paying to your pension?" Because that's the deciding factor in most people's cases.



  • Registered Users Posts: 58,830 ✭✭✭✭ namenotavailablE


    To maximise your tax relief, ensure that the sum of the bike to work cost plus pensions don't bring your income below €35300



  • Registered Users Posts: 18 Dedalus1


    If I drop my pension contribution down to 12% on my 42k salary, that'd be 5040 pa - meaning I've 36,960 remaining. That'd give me the wiggle room to get a bike and accessories for 1,000 or so on the BTW scheme at the higher tax rate.

    I really don't want to do this, but only if it's the only way. Are my calculations correct?


    P.S. My taxes are simple: single male.



  • Registered Users Posts: 58,830 ✭✭✭✭ namenotavailablE


    Yes- that will work. You could even set your pension to an extra €660 (calculated as €264 [tax amount @ 40%] / 40%). Here's what my calculator is showing if you set the pension to 12%:




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  • Registered Users Posts: 18 Dedalus1


    Okay, that's brilliant. I can get it sorted now.

    Thanks to everyone for their guidance



  • Registered Users Posts: 2,419 ✭✭✭ antix80


    I think would be unreasonable to make a simple calculator a fully fledged payroll system.

    Bike to work is salary sacrifice. If your salary was 51k and your bike cost 1k, your salary is now 50k cash and a 1k bike that's tax-free under the scheme.

    As for you saying you're paying the max into your pension...

    That could mean the max percentage of your income you're allowed to (incl based on your age), or you may mean the max you can pay to maximise tax savings at the higher rate.

    If you're paying into your pension monthly you can always reduce the amount, see how things pan out by the end of the year when all your writeoffs are taken into account, and make a single-premium payment to your pension to maximise your tax saving.



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