Tax bonus on pension contribution or just a mirage ?

jem16

madeinireland wrote: »

What would happen if I just let this run on - I suppose I could just save the money and make a bit of money for a while before they demand it back.

Nothing would happen apart from you underpaying tax assuming you don't make the same pension payment.

In this case they appear to be paying me back for the £12500 that the pension scheme claimed so I'm still not certain it's the same as your situation

It's quite normal for HMRC to assume that you will make a similar pension contribution next year and for them to adjust your tax code based on your tax return. I would be pretty sure that's what they have done. Will you be making a pension contribution this tax year?

What was your tax code and what have they changed it to? Are they applying it as an Mth1 code or a cumulative code? If you've just got notification of it, chances are that it won't be used till August.

madeinireland_2

I will make a pension contribution but probably not as much and won't the pension company get it grossed up so not sure why my tax code needs to change. I just got a refund in my July salary and the tax code is 3182L when last month it was 1000L

Thanks

Teeonethousand

This happened to me after i made a large payment last tax year. I decided to use the high tax code to up my salary sacrifice and also get NI savings whilst no real difference to net money. I will then use older allowances to true up my tax situation just before year end to max all 40% 'opportunity'

It does seem to me that (thankfully) once you decide to use it then the system really does favour higher rate tax payers. In the expectation that it might not last given the new rules to take it out again i thought i would grab it as much as i could

In hindsight i should have done more of this previously but i spent it on cars,holidays,going out etc and wasted the rest :-)

jem16

madeinireland wrote: »

I will make a pension contribution but probably not as much and won't the pension company get it grossed up so not sure why my tax code needs to change.

The pension company add basic rate tax relief. HMRC are assuming you will be claiming for higher rate tax relief.

I just got a refund in my July salary and the tax code is 3182L when last month it was 1000L

Thanks

The refund you got in July will include a higher amount to take care of April, May, June and July. Next month it will probably be lower as your tax for the whole year is recalculated.

Your change of tax code is allowing for a pension payment of £43640 assuming all at higher rate tax.

It's up to you whether or not you inform HMRC that your contribution this year will be lower and get it amended or leave it as it is knowing you will have a tax bill later.