Pension contributions - higher rate taxpayer. More questions, different situation.

Paul_Herring

I didn't want to thread hijack so thought I'd start another. Based on Pension contributions - higher rate taxpayer - how does this work?
and after all the nitpicks I have some questions of my own...

This year I'll be borderline higher rate - last pay packet this tax year will just take me over by my calculations.

1) Over the previous two tax years, I've had to fill in an SA. On both occasions I was still basic rate, however I'd overpaid tax by at least £200 (I'm on PAYE, but I get occasional overtime which this year will take me over into higher rate for the first time)

2) At the start of this tax year IR wrote to me and said I didn't need to fill in an SA for this year.

3) This year I've started a 2nd job, not too much money, but it's still extra. (Few hours behind a bar; keeps me out of trouble )

4) I have a stakeholder pension to which my main employer contributes. I only contribute to it from my main job. Both mine and my employer's contributions are supposed to take me to the maximum 17.5% (after IR's rebate) permitted for my age (in fact they're calculated on on my contractual salary, and any extra pay/overtime e.g. isn't accounted for - last year I made an additional contribution to account for it)

5) From my previous pension statements, the provider has been receiving the 18% extra on all my contributions.

6) IR, in their wisdom have seen fit to send me a P2 for next tax year (in part) "because we expect you to pay tax at 40% this year" (this takes my code from 489L up to 581L). This isn't a given however. The only reason I'm broaching Higher Rate this year is due to £x000 of overtime/bonus. There is no guarantee that I'll be getting that next year.

Now - from the thread mentioned above

Pal wrote:

If you are paying into a personal pension, stakeholder or free standing AVC plan you are paying from net income, the provider will immediately claim back 22% of the tax you have already paid on your contribution. To get the remaining 18% you need to complete a self assessment tax return.

The previous two years I completed SA over the web - can I just attempt to do the same this year without notifying IR or must I tell them first? (I have no qualms about using the web to do this, in fact I'd prefer it)

How does the extra 18% make it's way into my pension? Do IR tell my pension provider "here you are, some money for Paul."

Do I get 18% on all my contributions, or just the contributions that represent the salary over the higher tax limit?

Debt_Free_Chick wrote:

Better to get Form PP120 which will correct the position now, going forwards and then do the catch up on this year's SA Form.

Is it worth me doing this since I'm only borderline this year, and unsure if I'll even be near the limit next?

dunstonh wrote:

You gain a full 40% relief on all your contributions. (ignoring those that are borderline higher rate tax payers and ignoring any gain in childrens tax credit)

If it's relevant, I don't (and can't - I've checked ) claim any tax credit. No partner either.

TIA for any answers

Pal

Your best bet would be to raise the issue with the Inland Revenue, but they will almost certainly simply tell you to complete the self assessment form anyway. If it turns out that you are not higher rate tax it hardly matters, although it is a bit of a pain having to complete the forms.

Assuming that you are going to be in the higher rate tax bracket, the extra 18% doesn't go into your pension. You get it back through the tax system (either a cheque or an adjustment to your PAYE code). You can spend it how you like but the clever thing to do would be to pay it straight into your pension scheme again. Although you didn't pay tax on the 18% the provider will still claim the 22% tax back and you can still put it on your tax return if you are a higher rate payer to claim back the remaining 18%.

The 18% is just on the amount that you are over the higher rate bracket. The way it works is that your pension contributions are deducted from your gross pay before your tax is worked out, so chances are that the pension contributions will push you back down into the lower tax bracket, given that you are paying a lot and are only just over the higher rate limit.

Given that the IR has said that you shouldn't bother completing a return then I wouldn't bother completing form PP120, but your best bet is to phone the tax office and ask.