pension question

vsoe57

Hi I have a railway pension that I am paying into via smart pension payment I am a higher rate tax payer so how can I check if I getting tax relief at the correct rate being on p a y e do not do a tax return any help please many thanks .

Southend1

If you have salary sacrificed then the your taxable salary is reduced by the amount of the pension contribution so you needn't worry

mania112

SMART (correct me if i'm wrong) is your method of payment being a salary sacrifice contribution.

Therefore, what's happening is that your pension payment is being paid from your gross salary, before tax and national insurance is paid.

Your pay has effectively been reduced by the amount of pension contribution you make, so the net result is you save on having to make a national insurance contribution on this money (whereas the more traditional contribution method is taken from your post-tax and post-ni pay).

In terms of tax relief you will receive none, which might come as a suprise, but tax relief is a repayment of tax your paid - in this method you wouldn't have paid any yet, so you're no worse off.

Example:

You earn £28,000 a year and decide you want to sacrifice £1,500 of your salary in return for your employer paying an extra £1,500 into your pension. Your take-home pay, after tax, National Insurance and your own pension contributions, falls from £20,452 to £19,492. But the value of your total take-home package including the employer pension contribution has increased from £20,452 to £20,992. This means you are better off by £540 a year.

Being a high-rate tax payer is irrelevant for salary sacrifice pension contributions because the premium is paid before any income tax calculation.

If you were to contribute from net pay as a higher rate tax payer, you would still only receive 20% tax relief, and you'd claim the rest (so salary sacrifice has actually saved you a job by not needing to make that claim).

jamesd

With salary sacrifice, the sacrifice reduces your gross pay and HMRC sees that on its monthly payroll updates as well as the P60. So you get the tax gain automatically by having the pension deduction before tax and NI and HMRC knows that.

HMRC will still expect you to tell them about other taxable income and your expected P60 amount, though, because they use that to adjust your tax code to collect the correct amount of tax on the other income. If you're a basic rate tax payer and have only taxed or tax exempt savings this normally means having to tell them nothing to get things perfect. If you have some untaxed interest, say, you could just phone them or send them a letter to let them know how much and thy will adjust your tax code.

As a higher rate tax payer you'll need to tell HMRC about all interest, whether it's taxed at basic rate or not. That's because the tax on most interest is only at basic rate. Don't worry about going back a few years if you haven't been telling them, HMRC will be more happy to get any mistakes corrected than worried about penalties.