Jump to content

MDS calculations


Recommended Posts

Hello you knowledgeable forum members, not been on for a while so look forward to a good read later but for now, I have a question!!

 

Friends ds is off to vocational school and mum is worrying over finances. We met for coffee and looked at the fee calculator in the RBS website which is a useful tool and noticed it says, household income includes 'amounts paid to superannuated pension scheme's....can anyone clarify what exactly that means? Does it mean that the amount of money they pay out in pension contributions is added back into the pot so to speak? So even tho it is deducted from their salary, it has to be declared as income? Does that make sense? We have been trying to understand it so there are no surprises when the MDs calculation is done but we didn't get very far so I told my friend, I knew just who to ask! You guys! ????

 

 

Thanks in advance and apologies not been on for a while.

Link to comment
Share on other sites

Yes they add back pension contributions and virtually any other deduction made from gross salary.  So it is the gross salary which "counts".  Shortly with changes to the way taxable rental income is calculated on any buy to let property,  that is going to impact too - bit unfair in my view.

Link to comment
Share on other sites

Thank you, to use the 10,000 analogy, i understand that if your pension contribution is £1000, then you are still assessed on £10,000, not £9000...but someone else has told my friend that their pension contribution was added back onto their P60 figure, So in our example, they would then be assessed on £11,000! Hence we are confused and my friend anxious as she had done the sums based upon their P60 figures. I hope i am explaining this correctly as we are really confused! ????

Link to comment
Share on other sites

I think what is happening is that at that pension contributions benefit from tax relief, so the amount your employer pays on your behalf would not represent taxable income. So the P60 would actually show 9,000 income for the year.

 

In that case you would then need to add back the 1,000 to get to the MDS relevant number; 10,000.

Link to comment
Share on other sites

Sorry don't know how to quote! I am feeling particularly stupid at the moment! ???? CDR, does that mean you add your pension back onto your P60 taxable salary so as example above £10,000 becomes £11,000? My friend has looked at their payslips and P60, if they have to add their pension contributions back in then all of a sudden their MdS contribution goes up considerably although their net pay reflects having paid out £x amount on pensions. Sorry to labour the point, but using the example again, have I understood this to be correct ...gross pay is £10,000, you contribute £1000 to your pension, so net pay is £9000. However you have to add the pension contribution back in so your gross becomes £10,000 plus £1000 pension so mds is assessed.on £11,000 even tho net pay is only £9000??

 

Many thanks, I normally have a good head for figures but we have got ourselves in a right pickle with this today and am very concerned for my friend

Link to comment
Share on other sites

Most people's taxable income is the same as their gross income. Superannuation refers to certain public sector pension schemes which operate like a salary sacrifice scheme i.e. Pension contributions are made before tax and therefore do not show on your pay slip or P60 as 'taxable' income and therefore needs to be added back on to make your gross income. Only worth worrying about if you work for the NHS or similar public sector scheme.

Link to comment
Share on other sites

As I remember it they specifically ask for superannuation contributions on the MDS form. We were told that it had to be included in our gross income as it was money that we had earned but were choosing to put away for the future. Our choice. We sort financial advice about freezing our contributions to help with the school fees but we were strongly advised against doing that. It hurts to watch it come out every month ☹️

Link to comment
Share on other sites

Friend doesn't work for NHS or public sector company so pay slips just say pension contribution £xx or does that not matter given they are still putting away for the future as you say CDR?

 

 

Really appreciate everyone's input and patience with me!! Have passed all info onto my friend, she is very grateful and may join the forum!

  • Like 1
Link to comment
Share on other sites

I am classed as self-employed but a bit unusual as I pay into an NHS superannuation scheme. I've taken it that if I declare all my gross profit ......... this is the total amount I earn before paying tax and before paying superannuation contributions...... this is the figure they need to know. So for instance if my gross profit/earnings is £X ...... This is the amount I'm declaring for MDS calculations. From that value £X I would then be paying tax & pension contributions.

Link to comment
Share on other sites

Only worth worrying about if you work for the NHS or similar public sector scheme.

This is not correct, any and all pension provision contributions have to be added back to determine relevant MDS income, regardless of employment sector.

 

As ever, I would suggest speaking to the school, the bursar will clear this up for you in 5mins.

Link to comment
Share on other sites

Sorry to labour the point, but using the example again, have I understood this to be correct ...gross pay is £10,000, you contribute £1000 to your pension, so net pay is £9000. However you have to add the pension contribution back in so your gross becomes £10,000 plus £1000 pension so mds is assessed.on £11,000 even tho net pay is only £9000??

Come on, you know that's not right, you don't add the pension contributions twice!

 

If from gross pay (10k) they make pension contributions of 1k, there p60 will show taxable pay of 9k (because earnings used to pay pension contributions is not taxable). However, MDS in on gross pay, so take p60 and add back pension contributions- 9+1=10!

 

Pick up phone to bursar, probably easier for them to explain on phone.

Link to comment
Share on other sites

Wondering if any additional contributions towards your pension made by an employer have to be counted in - is this what perhaps is being referred to? Along the lines of taxable benefits such as car allowance/computer/mobile phones/healthcare paid by employer etc. A monetary amount for the benefit of these is added as if earned then you pay tax on this amount. Whilst you do not have to pay tax on the pension, perhaps any extra is still added onto Gross pay as it is an amount one does ultimately receive. However, as you can't get at it until 55 in most cases it would seem harsh to include this in MDS calculations as it is not actually money you have access to use towards fees. I am merely commentating & have no finance knowledge, expertise or experience....as said speak to school Bursars & there must be a central MDS governing body to talk to I imagine.

Link to comment
Share on other sites

Follow Sherbert's advice and speak to school bursar. Years ago they were able to give us a rough figure of our contribution prior to official notification.

 

At the time bursar advised we kept a copy of the MDS form to help us fill in the following years application.

Link to comment
Share on other sites

By definition auto enrolment is not optional. However, won't make any difference to the topic in discussion. It just means an employer must enrol employees in a pension plan, the mechanism for determining gross pay (pre contributions) remains the same.

Link to comment
Share on other sites

MDS forms can come quite late, but once they are returned, we have always had a speedy reply about how much we have to contribute. It was scary opening that email the first time! ????

  • Like 1
Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...