Reclaiming tax relief on salary sacrifice pension contributions

sly_dog_jonah

Early last tax year I changed jobs and the associated pay rise pulled me into the 40% income tax bracket.

At my previous employer I had been a basic rate tax payer and had opted to salary sacrifice my pension contribution, thus all my pension contribution came direct from my employer (including the company's matched contribution and topped up with NI savings). These contributions totalled over £500 last tax year (just under half of which effectively came from me), with my contributions automatically including basic rate tax relief due to the sacrifice arrangement.

On my pension statement, the contributions are shown as employer contributions and above this it states:

If you're a higher-rate tax payer, you can claim the balance of tax relief from HMRC through a self-assessment tax form. You don't get tax relief on payments your employer makes, ...

By my rough calculations I think I would have been £50 better off if those pension payments had not been made via salary sacrifice, allowing me to reclaim the additional tax relief (since my pay rise made me a higher rate tax payer for that year).

Does anyone know if it possible to reclaim this via the tax return, or is the pension statement wording wholly correct? Thanks in advance.

roger_c

If the pension contributions are paid out of your gross salary (i.e. BEFORE any tax is getting deducted) then you will already be getting tax relief as you will be receiving less taxable income and thus paying less tax. If the pension contribution is coming out of your net pay, (ie. after tax deducted) then you will have to claim the additional tax relief on your tax return.

There are appropriate boxes on your tax return (if you complete one) to claim the relief. If you do not complete a return phone your tax office and they can deal with it via your tax coding notice.

Lyndsay101

Hi

My understanding of a salary sacrafice scheme is that you give up a percentage of your gross salary .. say £5,000 from a salary of £50,000. This would reduce your gross salary to £45,000 and your employer pays the £5,000 you have given up straight into your pension.

On this basis, you only pay income tax and NI on £45,000 rather than £50,000. So you are already receiving relief of 40% income tax and 1% NIC that would have been charged had you contributed from your pension scheme from your net salary. This is effectively the same as you paying £3000 (so 60%/100%) into a net pension arrangement, receiving 20% relief at source and 20% additional relief as a HR taxpayer.

You would only get relief from HMRC if you were making net contributions into a pension scheme for your own salary. Where your employer is effectively paying 100% of the contributions for you (as designed to avoid employees/employers NIC) no income tax charge arises there.

In your statement you do say "You don't get tax relief on payments your employer makes" though.. which is confusing.. is it maybe there to catch anyone who is still in a net contribution arrangement? or do you make any contributions to another pension scheme?

Perhaps its worth querying with the HR dept? or maybe someone else here can help..

sly_dog_jonah

roger_c wrote: »

If the pension contributions are paid out of your gross salary (i.e. BEFORE any tax is getting deducted) then you will already be getting tax relief as you will be receiving less taxable income and thus paying less tax. If the pension contribution is coming out of your net pay, (ie. after tax deducted) then you will have to claim the additional tax relief on your tax return.

There are appropriate boxes on your tax return (if you complete one) to claim the relief. If you do not complete a return phone your tax office and they can deal with it via your tax coding notice.

The contributions were made out of gross salary, on my behalf by my previous company. At the time I was a basic rate tax payer. When I moved jobs within the tax year I became a higher rate tax payer, therefore I should be able to claim additional relief on those contributions?

Pennywise

sly_dog_jonah wrote: »

The contributions were made out of gross salary, on my behalf by my previous company. At the time I was a basic rate tax payer. When I moved jobs within the tax year I became a higher rate tax payer, therefore I should be able to claim additional relief on those contributions?

You've already had the tax relief. Your gross wages from previous employer were reduced accordingly by the same amount that they paid to the pension company. Therefore your P45 showed a lower gross figure. Your new employer uses the P45 figures for gross pay and tax as a starting point for tax deductions under PAYE. The reduced gross pay will filter through to new employment so you're pay subject to HR tax under new employer is less because of the reduced gross pay from your previous employer. Nothing more is due.

sly_dog_jonah

thanks pennywise, I hadn't looked at it from that perspective but that makes good sense