Please help me with tax relief on pension for higher rate taxpayer

wakeywarrior

Every year I have the same aggro with the IR and every year they seem to get it wrong, and I really struggle to do the calculations and so I would be really, really grateful if some kind person could assist.

In the year 2010/2011, I earnt £65,880.00 of taxable income. On this, I paid £15620.00 tax which I think means an underpayment of £662.00 in tax before taking into account any pension payments.
For tax year 2010/2011 I paid into my pension £5666.78 net of any tax relief- i.e. I actually paid £5666.78 from my net income into my pension.
I calculate that total relief on the £5666.78 should be £3777.85, of which I have already had half (20% basic rate paid into the pension) meaning I am owed £1888.92 relief.
Taking £1888.92 owed higher rate relief and deducting the £662.00 underpayment of tax, I calculate that I am owed £1226.92 in tax relief.

However, Inland Revenue say they have upped my relief to £6475, charge IT on £59,405 which at 20% is £8613.20 and at 40% is £6535.60 making total tax chargeable of £15148.80 meaning a refund of only £471.20.

Sorry it is so complex but in simple terms it could be put like this:

1) I earnt £65880.00

2) I paid £15620.00 in tax

3) I actually paid £5666.78 into my pension before any relief.

4) How much tax should I get back?

If some knowledgeable soul can help I will be very happy. Thanks:A

jem16

wakeywarrior wrote: »

For tax year 2010/2011 I paid into my pension £5666.78 net of any tax relief- i.e. I actually paid £5666.78 from my net income into my pension.

£5666.78 would mean a gross payment of £7083.47. That's an odd gross figure. Is your pension payment worked out as a percentage of your salary or what?

I calculate that total relief on the £5666.78 should be £3777.85, of which I have already had half (20% basic rate paid into the pension) meaning I am owed £1888.92 relief.

Not sure how you are working out your figures.

(EDIT : I figured out what you are doing which is wrong. You are taking the £5666.78 to be 60% of the gross. Net pension contributions don't work like that. When you pay net contributions you pay net of 20% tax relief as only 20% can be claimed by your pension provider. Your other 20% is reclaimed by you from HMRC but does not go into the pension. To get the tax relief you talked about you would actually have to pay £7555.71 net into your pension - that would be upped immediately to £9444.64 by the pension provider and you would then reclaim the other £1888.93 from HMRC bringing your net pension cost to you of £5666.78 )

£5666.78 net means £7083.47 gross. 40% of that is £2833.39 of which you have already had half of it so £1416.69 still to reclaim.

If you then deduct your underpayment of £662 that would be £754.69 still owed.

noh

I agree with jem16.

The way HMRC calculate the tax due when personal pension contributions have been made is to extend the 20% band by the gross amount of those contributions.

Your 20% band for 2010 would be £37400 + £7083 = £44483

Therefore in 2010/2011 assuming your tax code was 647L your calculation should look like this

£6475 at 0% tax due £0
£44483 at 20% tax due £8896
£14922 at 40% tax due £5968

Total tax due £14864

Tax already paid £15620

Refund due to you £756

I have rounded off the figures so the result may be out by +/- £1

noh

Further to jems post above what figure did you actually put on your tax return for pension contributions?
The reason I ask is because it is possible you may have informed them of an incorrect amount.
You should have entered £7083 on your return.
If you entered anything different then HMRCs calculation will also be incorrect.

Edit:-
I may be wrong but after reading through your post again I suspect you entered the net amount ie £5566 as your pension contribution on your SA tax return.

wakeywarrior

Hi Guys- this is really great thanks.

This happens every year- I get it a bit wrong (but tell them the correct figures) and they get it wrong, send me a cheque, I chase them and get a bit more. It's happened again!

I don't do a tax return- I sent them a letter and I quote:

"For tax year 2010/2011 I paid into my pension £5666.78 net of any tax relief- i.e. I actually paid £5666.78 from my net income into my pension."

So it looks like I am still owed a few quid. To me the system of uplifting personal allowance is just unnecessarily complicated.

Thanks again

jem16

wakeywarrior wrote: »

To me the system of uplifting personal allowance is just unnecessarily complicated.

What other way would you suggest they do it?

The pension provider cannot do it as they would need to know your total income which is why they only claim the basic rate tax relief.

The only other way is for you to do a self assessment tax return each year.