AVC/Pension contributions and PAYE

scottiescott

Can anyone explain by what method AVCs receive tax relief?
On my pay slip my regular Company Pension contribution is shown just under my gross pay as a - (minus) figure, i.e it is deducted from gross monthly earnings and that "new" gross figure is then taxed.
My AVC deduction on the other hand shows as a standard deduction alongside tax and NI.
Surely to obtain tax relief on AVC, the amount should also be deducted from gross earnings and a reduced gross figure taxed?
Why the difference?
Thanks in advance.

greenglide

Who does the AVC money go to? If the AVC fund also claims the tax back from the AVC provider then this would be correct (but you would need to claim higher rate tax separately). If the AVCs are held by the main pension provider (so the amount you pay is the amount that goes into the fund) then either the payments are being handled wrongly (unlikely but not impossible) or you have misinterpreted the payslip.

scottiescott

The AVC money is transferred by my employer to Friends Life.
I can view my FL account on line and the "payments received" are exactly the same amount as the deduction from my payslip.
I am a basic rate tax payer but I would have thought that at some point, either on payslip or in a credit of some sort on my FL account, I would see my 20% tax relief.

rpc

Is your main contribution salary sacrifice?

Have you actually worked out how much tax you should pay and how much you are paying? i.e. not relying on the payslip calculations.

Our main scheme benefits are paid by salary sacrifice and show as a deduction on the left column as you describe.

AVCs used to be under a net pay arrangement (so shown in the right column) but then changed to salary sacrifice, so are now shown on the left.

A relief at source pension contribution would also show in the right hand column I think (never had one but wife does), so you can't just rely on the location of the deduction to work out the tax relief.

I suspect you are on salary sacrifice main scheme and net pay AVCs. Either ask, or do the maths yourself. Or post the numbers and someone here can.

FatherAbraham

scottiescott wrote: »

Can anyone explain by what method AVCs receive tax relief?

You r AVC is like a personal pension. The provider will reclaim basic-rate tax relief from HMRC. If you pay higher-rate or higher taxes, then you write to HMRC at the end of the tax year and say "I paid £X of my net income into an AVC pension fund, please give me the extra tax relief back", and they will send you a cheque, and adjust your tax code for the future so that PAYE is taking closer to the right amount.

Warmest regards,
FA

FatherAbraham

FatherAbraham wrote: »

Your AVC is like a personal pension. The provider will reclaim basic-rate tax relief from HMRC. If you pay higher-rate or higher taxes, then you write to HMRC at the end of the tax year and say "I paid £X of my net income into an AVC pension fund, please give me the extra tax relief back", and they will send you a cheque, and adjust your tax code for the future so that PAYE is taking closer to the right amount.

Unless your AVCs are being paid by salary scrifice (in which case, hurrah! You'r dodging National Insurance!)

Warmest regards,
FA

FatherAbraham

scottiescott wrote: »

The AVC money is transferred by my employer to Friends Life.
I can view my FL account on line and the "payments received" are exactly the same amount as the deduction from my payslip.
I am a basic rate tax payer but I would have thought that at some point, either on payslip or in a credit of some sort on my FL account, I would see my 20% tax relief.

How long has this been going on? Have the AVCs just started, ?

It takes non-negligible time for HMRC to refund the basic-rate contribs to Friends Life (it's not instant).

Having said that, many providers credit the tax relief immediately. including FriendsLife on a personal pension which I have.

If this is not new, then there may have been a miscommunication between employer making deductions and provider receiving contribs.

Warmest regards,
FA

scottiescott

First of all I have been paying AVC's for many years (25+) but have never given this issue any thought until now (as I approach my final working years!).
I would understand that my main pension witht the Company is Salary Sacrifice. As I say in my original post the deduction is on the left side of my payslip, underneath my monthly gross pay and is entitled "Smart Pension", and is a minus figure. i.e. it is taken off my gross pay before tax calculation.
Since my AVC deduction is on the right hand side I assume that it is taken after tax and that same amount is shown on my Friends Life statement a having been received.
For round figures, £150 is deducted in AVC by my employer and £150 is received by FL. So where do I get the tax relief? Does FL claim it back? If so, why does it not show on my FL statement as a further credit?
I am not a higher rate tax payer so not in a position to write to HMRC to claim back tax as Father Abraham advises.

greenglide

If the AVC contribution is not by salary sacrifice then it cannot be simply deducted from the gross pay before tax and NI. Instead it is deducted from the taxable pay before the tax calculation (thereby giving you tax relief) however the pay subject to NI does not have this deduction as NI is only avoided by salary sacrifice.

This accounts for the difference in the handling and it is how the main pension contributions would have been treated before salary sacrifice was invented.

rpc

FatherAbraham wrote: »

The provider will reclaim basic-rate tax relief from HMRC.

If contributions are paid under relief at source arrangements.

They could also be paid under a net pay arrangement where they are paid into the pension as gross contributions and the employer handles the tax relief.

I do not know if this is univeral, but GPPP (being a personal pension) seems to use relief at source and occupational pensions usually use net pay.

There are three ways of making occupational pension contributions: sal sac, net pay, relief at source. In only the last of these does the scheme claim the tax relief.

edit: these are described here https://www.gov.uk/workplace-pensions/managing-your-pension

rpc

scottiescott wrote: »

I would understand that my main pension witht the Company is Salary Sacrifice. As I say in my original post the deduction is on the left side of my payslip, underneath my monthly gross pay and is entitled "Smart Pension", and is a minus figure. i.e. it is taken off my gross pay before tax calculation.

That is salary sacrifice. It isn't so much deducted from your gross pay as you have agreed to change your contract to accept a lower gross pay in return for your employer making a pension contribution.

Since my AVC deduction is on the right hand side I assume that it is taken after tax.

Not necessarily correct.

For round figures, £150 is deducted in AVC by my employer and £150 is received by FL.

And, referring to your payslip, has your net pay reduced by £150 or 80% of £150 because of that contribution? You can work out tax and NI without that deduction to see what effect it is having.

You either need to know whether you are on net pay or relief at source; or work out whether you have paid tax on that pension contribution in your payslip.

It sounds like you are on the arrangement I used to be where main scheme is salary sacrifice and AVCs are net pay. In that case, all tax relief is on your payslip. Main scheme contributions on the left side, AVCs on the right. No tax paid on either, so no relief for the scheme to claim for you.

Does your payslip show gross pay and taxable pay as separate items? Are they different by the AVC amount? That would also demonstrate tax relief.