How to pay 10% tax on £100,000 income

First, you need to be outside of PAYE and you need to be a freelancer. Essentially you are a one person limited liability company that contracts out your services on a short term (less than two years) basis to people willing to pay for them. Everything from computer programming to working on an oil rig can be done this way. It seems it is only the public sector that will pay managers this way.

Assuming that your company is paid £100,000 per annum for your services, you could do it like this:

Pay yourself £8,000 PAYE. This would incur £49 of employee NI and £72 of employer NI so your total tax paid so far is £121.

Pay yourself £42,000 as a dividend, on which you will pay £2,742 tax, bringing your total tax so far to £2,863.

Pay the remaining £50,000 into your pension, tax free. This leaves your total income tax unchanged at £2,863 however you will have to pay corporation tax on your dividends.

Pay your small company corporation tax of 20% on the £40,000 "profit". This takes your total tax bill to £10,863 which, forgive my provocative headline, is closer to 11%.

This works great if you are about to retire in a few years and don't need all of your income to support yourself.

There are companies out there that will offer you up to 91% of your pay and I'm not sure how they do it but they're brazen enough to have pretty snazzy websites so I presume that HMRC are OK with it.

If you're inside PAYE then fear not, you can still do pretty well by making a massive voluntary contribution to your pension. On £100,000 salary you would pay £35,221 in personal income tax (not including your employer's NI contribution on your behalf of £12,768). However if you contribute £30,000 to your pension, the government would allow you to claim back the tax that you had paid on that contribution, which in this case was of course £12,000. This takes your total tax bill back down to £23,221 which is 23% (the original figure was 35%).

The key is, you have to be wealthy and not need that income yet. Imagine if you had no mortgage and your children were all grown up and had left home. Think how cheaply you could live then and you'd probably be ready to retire in a few years anyway.

That said, there are companies out there that will essentially loan you a percentage of your pension (up to 50%) in exchange for getting their hands on it, tax free, when you retire.