Max pension contributions for tax relief: PAYE & self-employed income

R

Rose321

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Hi everyone,

I'm trying to work out how pension contributions are calculated for tax relief purposes, especially for someone with both PAYE and self-employed income. I'm in the 40-49 age bracket, so my age-related percentage for contributions is 25%.

Am I right that "net relevant earnings" is the figure used to determine the maximum tax-relievable pension contribution. I'm wondering how is "net relevant earnings" calculated in a dual-income situation?

Some example figures:
  • Gross PAYE employment income: €20,000
  • PAYE pension deducted in payslip: €1,000
  • Gross self-employed income: €30,000
  • Self-employed income after expenses: €15,000
Is the "net relevant earnings" for a self-employed person their net income after expenses (€15,000 in this example) and for a PAYE worker, it's the gross salary?

So, for pension relief purposes, is the maximum contribution calculated on:
  1. Just the net self-employed income? (25% of €15,000 = €3,750)
  2. A combined figure of both incomes? (25% of €20,000 + €15,000 = €8,750 - €1000 = €7750)

So my main question is:
  • What is the maximum pension contribution I can make to reduce my overall tax liability? and can that be in 1 pension, e.g. PRSA for the self-employed income or does it need a second AVC for the PAYE?
I'm trying to figure out which figure to base my calculations on and what the practical steps are to ensure I'm making the most of my tax relief. Any guidance would be really helpful!

Thank you!
 
If you are in pensionable employment from your PAYE job, you have to max out your contributions to that income first. If there is still scope to make contributions through your self employed income, you can make a separate contribution to a separate policy.

Net relevant earnings comprise the trading and services income of self-employed persons. They are effectively the taxable trading profits. They are net of losses, tax deductible interests. and capital allowances, which are deducted in the calculation of taxable profits.
 
Is your PAYE employment a company occupational pension scheme, or is it a PRSA that your employer also contributes to ?

Is the 1k contributed directly from your wages an employee or employer contribution, or a combination of both ?
 
S class said:
s your PAYE employment a company occupational pension scheme, or is it a PRSA that your employer also contributes to ?

Is the 1k contributed directly from your wages an employee or employer contribution, or a combination of both ?
Click to expand...

Thank you @S class The PAYE is teaching (subbing) & the 1k is directly from my wages to Dept of Education, no employer contribution in the 1k.
 
Steven Barrett said:
If you are in pensionable employment from your PAYE job, you have to max out your contributions to that income first.
Click to expand...

I think this rule doesn't apply where the combined income from both jobs is less than €115,000. Assuming that @Rose321 has income of less than €115,000 from both sources, she could choose to make a pension contribution against her self-employed income regardless of whether or not she has maxed out her tax relief on the PAYE income.
 
Dave Vanian said:
I think this rule doesn't apply where the combined income from both jobs is less than €115,000.
Click to expand...
Ok thank you, yes less than €115,000 - so with the example numbers above is the max PRSA based on:

Gross self-employed income: €30,000 x 25% or Self-employed income after expenses: €15,000 x 25%?
 
Use 25% of your gross income for USC, minus 1k, as the total for your PAYE employment.
+
You can also make a pension contribution of 25% of your 15k self employment income.

Assuming that you are in a public sector pension scheme for the teaching employment. You can either pay the AVCs for this employment directly to the AVC provider for this scheme. Or you can set up your own AVC PRSA and make contributions to this.

You will need to set up a separate PRSA for your contributions from your self employment.
 
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