Paid £9500 avc but only £1529 tax relief?

philng

I submitted a claim to tax office for tax relief on £9500 avc payment made in last tax year but have only received a payment back of £1529. I was expecting a lot more as my gross earnings for tax year were £52033 and I assumed I would get 40% tax relief on the payment?
There calculation is as follows

Income 52033
Minus 60
Total income. 51973. Tax paid 10429.20


Less personal tax allowance 7475

Income tax chargeable on 44498 at 20%

Tax chargeable. 8899.60

Therefore 1529.60 refund

They say the basic rate has been extended from 35000 to 44500 to account for the 9500 avc payment.

This means they have paid me less than 20% tax relief on the pension payment when I was expecting 40% something over £3500?

My tax adjusted tax code for the year was 537l to allow for a company car.

Surely I paid 40% on some of my salary via paye so should receive 40% tax relief?

Can anyone help?

jem16

philng wrote: »

I submitted a claim to tax office for tax relief on £9500 avc payment made in last tax year but have only received a payment back of £1529. I was expecting a lot more as my gross earnings for tax year were £52033 and I assumed I would get 40% tax relief on the payment?

Need a few extra details;

1. Was the AVC made to a final salary scheme or money purchase scheme? If it's final salary ( and I suspect it is going by previous posts), can you give your total income minus your normal pension contributions as your tax paid doesn't match your income.

2. Was the £9500 the gross amount or net amount? Was it definitely £9500 - you said £7500 earlier in the year.

hugheskevi

As well as jem16s questions above (and I suspect the second question holds the key to the answer), it would be helpful if you say where you think the analysis below is wrong.

From what you say, I read it that:

Taxable income: £51,973
Tax due on £51,973 with standard personal allowance: £10,799
Tax actually paid: £10,429
Tax underpayment (before considering pension contribution): £370

Then you make a £9,500 gross pension contribution. HMRC will have assumed this has received 20% tax relief already, ie, you sent a cheque for £7,600 which the pension scheme applied 20% relief to, making a gross contribution of £9,500

That changes the numbers above to:

taxable income £42,473
tax due: £7,000
tax actually paid: £10,429
relief already received: £1,900 (£9,500 less £7,600)
Tax refund due: £1,529 [£10,429 less £7,000 less £1,900]

So I read it that they gave you the 20% higher rate relief due (the other 20% having been assumed to have been given by the pension provider), less the £370 tax underpayment.

Not sure why the tax code of 537L doesn't seem to have been used in the calculations though - presumably some interaction there with taxable income so it has already been taken account of.

jem16

hugheskevi wrote: »

Then you make a £9,500 gross pension contribution. HMRC will have assumed this has received 20% tax relief already, ie, you sent a cheque for £7,600 which the pension scheme applied 20% relief to, making a gross contribution of £9,500

I suspect this is what HMRC is thinking too.

However from a previous post by the OP, this appears to be an AVC payment to a final salary pension scheme where no tax relief has been given.

https://forums.moneysavingexpert.com/discussion/3844265

hugheskevi

In that case, this thread should be helpful to the OP to pursue the outstanding £1,900:

https://forums.moneysavingexpert.com/discussion/4043989

jem16

hugheskevi wrote: »

In that case, this thread should be helpful to the OP to pursue the outstanding £1,900:

https://forums.moneysavingexpert.com/discussion/4043989

It will also be helpful if the OP indicated how he had submitted the claim - ie did he send the certificate from his employer? - or are HMRC under the impression that it's a normal higher rate tax relief claim where the extra 20% is being claimed.

jamesd

philng wrote: »

They say the basic rate has been extended from 35000 to 44500 to account for the 9500 avc payment.

That's how they normally do it. So they would have calculated nil tax on the personal allowance portion of your income, 20% on the next 44,500 and 40% above that. You get the extra higher rate tax relief by having reduced higher rate tax due due to that higher basic rate band.

philng wrote: »

This means they have paid me less than 20% tax relief on the pension payment when I was expecting 40% something over £3500?

You might not have understand how the extended basic rate tax band works.

Say you have an income of at least 51,975 (7,475 personal allowance in 2011-12 + 44,500) for convenience. On the income between the personal allowance and 44,500 you would originally have paid:

20% on the first 35,000 = 7,000
40% on the remaining 9,500 up to 44,500 = 3,800
Total tax chargeable = 10,800

With the basic rate band increased to 44,500 you instead get charged:

20% on 44,500 = 8,900

The difference is 10,800 - 8,900 = 1,900

And that's how you can get the 40% tax relief on the pension: you pay higher rate tax on less of the rest of your income.

HMRC seems to have used 9500 as the amount after basic rat tax relief was added by your work scheme. Which means that your net payment into the scheme would have had to have been £7,600. How much did you pay, was that before or after tax was deducted by payroll and how much tax relief was added by the scheme? It's possible that you made an after tax payment of 9500 and in that case you won't have had the full tax relief. From your earlier post it looks as though it was the net, after tax and NI, amount? And that 25% wasn't added by the pension scheme?

If so, one way to do it is to phone HMRC and say sorry, you gave the net amount of the pension contribution and the scheme didn't add basic rate tax relief automatically, so one way to handle it would be to increase the personal allowance band, not the basic rate band, so you get both basic and higher rate tax relief allowed for. If you call you can explain further if they have any questions about the situation and why the scheme didn't handle the basic rate relief. Mornings are usually the best time to call if you don't want a longish wait. Avoid evenings.

philng

Thanks for your replies:

-My pension is a Final Salary Non Contributory Pension
-I paid £9500 Gross to my AVC & didnt receive any Tax Relief at source
-I sent certificate with claim confirming amount paid in & that No Tax Relief had been paid at that stage
-I dont understand if my PAYE earnings are £52000 which was increased to this level by approx £2500 for Co Car & then full tax allowance aplied, why I dont get 40% relief on my AVC payment.

xylophone

Is this an in house or free standing AVC?
http://www.pensioncheck.co.uk/additional-voluntary-contributions.htm

philng

In house AVC but when I paid the £9500 in in March they said they couldnt automatically apply tax relief but to apply via HMRC.

philng

The total income is worked as follows:

48952 PAYE
2964 Car Benefit
117 Gross Interest received

52033 Total

p60 Tax Paid 10429