Please help with NHS Pension Purchase and Tax Relief

Deneb

I suspect it may be due to the vagaries of different finance departments and how they decide to administer the payments.

I do have first hand experience of how frustrating this can be though. I retired from one career last year and have since been employed by my LA, and paying into the LGPS. However, at around the same time my LA merged their pensions administration with an adjoining county. I have been trying to make enquiries with the pensions dept. for the last three months about paying AP or AVCs. So far, they seem unable to decide which of two pension schemes I am paying into or which of two different providers' AVC schemes apply to me, although they've been happily deducting pension payments from my salary for the last 9 months!

dibdabable

Good thought xylophone but the amount purchased was £16000 worth of AP so at 20% it's certainly a refund we'd have noticed.

Last night and this morning I've found a few things on the HMRC website that do agree with what we are debating, for example under the Tax Relief on Pension Contributions; Retirement Annuities(which I think you could suggest this is)..... don't offer "relief at source".... Instead you'll need to claim the tax relief you're due through your tax return, or if you don't complete a tax return by telephoning or writing to HMRC.

Aahh it all seems so simple.:rotfl:

hugheskevi

the amount purchased was £16000 worth of AP

Are you familiar with how the Annual Allowance for pension contributions works for Added Pension?

It isn't based on the contribution, but on the amount of pension bought. If you are young, sustained contributions of that amount could possibly see you exceed the annual allowance as you are deemed to contribute a lot more (perhaps double) than you actually have contributed.

If that makes no sense at all to you, make sure you research Annual Allowance and understand the implications.

Retirement Annuities(which I think you could suggest this is)..... don't offer "relief at source".... Instead you'll need to claim the tax relief you're due through your tax return, or if you don't complete a tax return by telephoning or writing to HMRC.

Think you are referring here to Retirement Annuity Contracts, which were a pre-1988 type of personal pension.

I wouldn't mention this to HMRC as it isn't what you have, and it will just confuse them even more.

BTW, whilst you are doing this, you may as well ask them to change your Tax Coding if you intend to make a lump sum contribution again, so that most relief is given in-year, then just tidy-up any small differences at end-of-year.

xylophone

I've had another thought - suppose there was indeed supposed to be a tax refund in the payslip for last tax year but payroll couldn't do it in time?
In which case your husband would have to claim a refund from HMRC....

"There's a hole in my bucket dear Liza, dear Liza......":o

xylophone

If that makes no sense at all to you, make sure you research Annual Allowance and understand the implications.

http://www.nhsbsa.nhs.uk/Documents/Pensions/Reduced_Annual_Allowance__-__Additional_Pension_(AP)_and_Added_Years_(AY)_V2___04.2012.pdf

I have just found this or have you already seen it?
It includes this:

Additional Pension
AP is an option to buy extra annual pension, available in both the 1995 and 2008 Sections of the Scheme. If AP of £2,000 is purchased by a single payment, its value for Annual Allowance purposes under the rules for 2011/12 is £2,000 x 16 = £32,000 in the year of purchase. This amount will count towards the Annual Allowance of £50,000. Therefore the Annual Allowance remaining is £50,000 – £32,000 = £18,000 in this example*.

If you exceed the annual allowance in any one year you can ”look back” up to three previous tax years to see if you have any unused allowance from these years. If you do, you may be able to “carry forward” any unused allowance and add this to your allowance in the current year.

And this:
NHS Pension Scheme contributions are taken from your pay before tax is taken off. This means that your contribution reduces the amount of your pay subject to tax, so that you can effectively receive income tax relief at your highest marginal rate.
Additional pension
Additional pension is deducted from your pay and receives tax relief in the same way as ordinary contributions (see paying into your pension section above).

There is also an enormous amount of other information.

dibdabable

Thanks.Yes we are aware of the Annual Allowance where AP is concerned and I should have said rather than £16000, he'd purchased £1000 worth of AP, but I was illustrating the fact that £16000 times 20% would have been noticed in his payslip, I wasn't talking about how much allowance he'd used etc.
It might be worth getting them to change his coding but it looks like we'd have the same problems with HMRC in order to do that. If we'd have to get them to tidy up at the end anyway, my husband would rather have a lump sum at the end of the year as he hasn't decided exactly how much he'll purchase next time. Hopefully once he has received this Relief we'll have had that experience to prove to them next time that it is feasible.

Certainly if we can get the Wages Dept involved then that would be simpler, but we're only acting on what the Pensons Dept told my husband about contacting HMRC for the Tax Relief, so it doesn't sound as though it's normal practice for it to be issued through Wages, but no harm in asking.
As regards your notes xylophone re;contributions, the relief is only given for AP when the purchase is made by intallments, that is not the case here as there's also the option to purchase by a lump sum which works out slightly cheaper, which is the option my husband took.

dibdabable

A little update for those interested. Over the weekend I emailed the Pension Advisory Service. They responded today and confirmed the situation for us and sent a link for us to ask the call handler or otherwise to refer to
.http://www.hmrc.gov.uk/manuals/rpsmmanual/rpsm05101360.htm
Also my husband spoke to his own Pension Dept at work and they said that they didn't deal with this and to apply to HMRC.

So we rang today, we decided I'd speak as again my husband only available at lunchtime. I went through the same details as before and was met by a similar response intiially, so I decide that rather than refer to this that and the other I would ask the very simple and straightforward question.
Me;
"Would you agree that pension contributions attract Tax Relief"?
Call handler;"Yes"
Me; "So when and where in this scenario has relief been given"?
Call Handler; Long silence......"Oh I see, when you put it like that, you're right"

He then wanted us to send in the papers again!! I reminded him we had already done that, no one had bothered responding to our original letter 10 weeks ago for which he apologised, I've taken his name and he is personally going to follow this up and we will have a response within 10 days.
So a result of sorts. Am going to wait 12 days and then we'll see!!

tcpip

A big thank you to dibdabable and the others.

My employer is closing our final salary scheme in June, so I decided to both sacrifice my salary for February to June and pay in some additional AVCs from my savings which I had already paid tax on and had no tax relief applied either at source or credited to my pension account (so no tax relief at all).

I paid in a one off lump sum of £16,000 in 2013/2014. I got a 'Single Premium Contribution Payment Certificate (SPCPC)' from my employers pension provider which confirmed that Her Majesty's Revenue and Customs (HMRC) has approved the arrangement as a Registered Pension Scheme under The Finance Act 2004, showing a Gross Employee Contribution Paid of £16,000. £16,000 is also the exact amount that got credited to my pension scheme (AVCs are treated as DC benefit, but means I don't have to commute my valuable DB benefit to take my 25% tax free lump sum).

I put this £16,000 in Box 3 under Tax Relief on my 2013/2014 SA100 Tax Return (online), the HMRC system duly calculated the correct refund due.

Before submitting my SA100 Tax Return I had contacted HMRC by phone to ask whether it was ok to submit the return as I hadn't yet had my P11D (though my employer's payroll department have emailed me the figures which I entered on the return). HMRC said this was fine, but to check the 'provisional figures' box and explain about the P11D figures in the comments box. I did this and am now awaiting my refund which is pending payment next week :-)

However, in the same phone call, the agent asked for details about this tax year, 2014/2015 so that my tax coding could be correct. I gave him the details, including that I would be paying in an additional £20,000 lump sum this year before the scheme closes in June (on top of my salary sacrifice). I duly received my new tax code today, which is wrong and only gives me relief on £10,000 'Personal Pension Relief'.

I telephoned HMRC today and was told very bluntly that I wasn't entitled to tax relief on these additional contributions as it wasn't a 'personal pension', if it were a personal pension the provider would give relief at 20% already, in which case the amount in my new tax code would be correct. I explained several times that it was my employers scheme, etc. etc. paid from my savings, etc. etc. but he was not having it at all. He then told me I had wrongly claimed relief on the £16,000 on my recently submitted SA100 Tax Return as well! I explained to him about Box 3 on the SA100 Tax Return and the associated notes, but said that was for annuity contributions [which having checked and that is what Box 2 is for] - again he was blunt and unhelpful.

He then removed all pension relief from my tax code, told me I couldn't claim it as a one off payment and that basically I was wrong, wrong, wrong.

So a bit of Googling brought me here (as well as a few other places) and confirmed my position was correct.

I telephoned HMRC again and spoke a lady who also didn't understand the position, but I then referred her to both the HMRC technical notes [link provided on this forum] and the SA150 Guidance Notes:

hmrc.gov.uk/manuals/rpsmmanual/rpsm05101360.htm

hmrc.gov.uk/worksheets/sa150.pdf (Tax Reliefs - Box 3 [currently page 18/19].

She [HMRC] then agreed with my position, that I had correctly completed my SA100 Tax Return, etc. and that I was entitled to my refund.

However, about my 2014/2015 Tax Code - there seems to be a limitation in the HMRC system; there is no box on their tax coding system for such a 'one off pension payment with no tax relief' she could only enter £20,000 in the 'Personal Pensions' box, which gave relief of £10,000 on my tax code [assuming my pension contributions would already get basic rate tax relief/credit to my pension account - which they don't]. So, both HMRC and I now know I will overpay tax by £4,000 this tax year; which I will have to claim on my next SA100 Tax Return in April 2015. She said she would update the notes on my account accordingly.

Clearly this is not a common occurrence, but it is frustrating that I will have to wait nearly a year to get my £4,000 back and that one of their staff effectively told me I was evading tax/wrongly claiming a refund. I will be writing to HMRC to suggest they improve their training! If the first advisor didn't know, he should have checked.

Anyway, a big thank you to those who helped answer this - you saved me a lot more hassle.

PS - I'm aware of the annual limits and lifetime allowance and am currently within these.

hugheskevi

However, about my 2014/2015 Tax Code - there seems to be a limitation in the HMRC system; there is no box on their tax coding system for such a 'one off pension payment with no tax relief' she could only enter £20,000 in the 'Personal Pensions' box, which gave relief of £10,000 on my tax code [assuming my pension contributions would already get basic rate tax relief/credit to my pension account - which they don't]. So, both HMRC and I now know I will overpay tax by £4,000 this tax year; which I will have to claim on my next SA100 Tax Return in April 2015. She said she would update the notes on my account accordingly.

They need to enter it as a payment to a Retirement Annuity Contract.

Personally I never speak to HMRC by 'phone, as they are worse than useless as soon as you get beyond basic issues. Writing to them I now never have any issues. The text of the template letter I use to write to them for a Coding Notice amendment for a scheme not operating Relief At Source is below.

CODING NOTICE AMENDMENT FOR 2014/15

Dear Sir/Madam,

Tax reference: (insert)
National Insurance number: (insert)

I am writing to amend my Tax Coding Notices for 2014/15.

My estimated taxable income for 2014/15 is £(insert) and I plan to make a pension contribution of £(insert) to a pension scheme which does not operate either relief at source or net pay arrangement and hence all tax relief has to be claimed from HMRC.

As the pension scheme does not operate relief at source on this type of payment, it has frequently been dealt with incorrectly by HMRC in previous years.

I believe you enter this type of pension contribution into your system as a contribution to a Retirement Annuity Contract as although the pension scheme is not a Retirement Annuity Contract, the tax treatment is the same.

This will result in a revised Tax Coding notice of approximately (insert). If instead it results in a Tax Coding notice of approximately (insert) then it has been incorrectly entered into your system as a personal pension contribution to a scheme operating relief at source.