Tax relief on pension contributions for higher rate tax payer?

jamesd

Mrs_Money wrote: »

I thought he had to claim back some tax for his contributions, but he asked his HR dept and they told him it's all done automatically. However, on checking his salary slip we see that his tax code is just the standard personal allowance of 810 (or is that not relevant?).
We've run out of people to ask, so I'm hoping that someone on here can come up with the answer!

We can't give a definitive yes or no answer. It could be either, but it's likely to be safe to say that HR will know and give the correct answer.

Does the pension say anything about salary sacrifice or smart pensions or scheme salary or saving NI or getting some employer NI added to the pension? If it says that benefit choices can only be changed once a year that's another possible clue to it being salary sacrifice, though from summer 2012 it's possible to change the pensions part of a benefits setup from month to month if the scheme lets you. If yes to any of these it's probably a salary sacrifice arrangement and he's getting full tax relief automatically each month. There's no need to adjust the tax code in the case of salary sacrifice because he never receives the money as part of his income, it's all done as an employer contribution instead. This is the best possible way to do it because it's all automatic and gives extra NI benefit. The payslip will show both income tax and NI on only the after pension amount of income.

Some schemes may deduct from gross pay, but not via salary sacrifice. In these there will be NI on the full pay but income tax only on the part of pay after the pension contribution. Because it's a deduction from gross pay there's no need for the personal allowance to change because it's handled by deducting before income tax. A payslip checker may let him check how the NI compares to the salary before and after pension deduction and that may confirm if it's one of these schemes.

Other schemes may deduct from net pay. In these it's necessary to have the tax code adjusted. See if the payslip gives a clue about when it's deducted. Can also check to see if both the income tax and NI is consistent with the full gross pay, to tell the difference between this and the last one.

thenudeone

If its a money purchase scheme you can check which way it works by comparing the amount taken off the payslip with the amount appearing as a credit in the pension provider's statement.

If, eg. £80 is taken off the payslip but a total of £100 appears on the pension statement (although it might appear as £80 initially plus an additional £20 tax relief added on later), then the pension is being taken from NET pay and the pension provider is claiming back basic tax relief only. A 40% taxpayer has to arrange with HMRC to reclaim the extra through their tax return, a one-off refund or through their tax code.

If £100 is taken off the payslip and a total of £100 appears on the pension statement, then the pension is being taken from GROSS pay, ie. all the PAYE taxe is calculated on the lower salary left after deduction the contribution. There is no need to do any other reclaim, regardless of the tax rate you pay; It's already been done.