James just got promoted to £110,000. He thinks he's paying 40% tax. He's actually paying 62% on every pound between £100,000 and £125,140.
Why? For every £2 James earns over £100k, he loses £1 of his £12,570 Personal Allowance. That's a hidden 20% tax on top of the 40% rate. Add 2% NI and the marginal rate is 62%. He's keeping just 38p of every pound in that band.
His accountant tells him to put £10,000 into his pension via salary sacrifice. His adjusted net income drops to £100,000. He keeps his full Personal Allowance. The £10,000 pension contribution only "costs" him about £3,800 in take-home pay — because the tax saved is enormous.
→ Action: Calculate your adjusted net income. Pension enough to get below £100k.