Contributions - very basic question.

simm122

Hi all,

I appreciate this is a very basic question, but looking for your guidance please.

Could someone explain to me the basic principles re the type of my contribution and how tax relief is applied? wanting to ascertain whether as a high rate tax payer I need to claim any additional back?

I am in a group scheme I make a contribution of gbp 200 of which my employer matches. Upon my payslip gbp 200 is deducted and upon my pension contribution statement it shows that gbp 400 is added incl. company match.

within my payslip my gross pay is identicle to my taxable pay

Hope this info is sufficent??

Thanks in advance for your guidance
simm122

vm2pensioner

Normally, basic rate relief is given at the time of contribution, (i.e. £40 allowance in your income tax deduction - check your payslip or with your payroll department) but you have to claim the difference between BR and HR relief in your tax return.

somethingcorporate

If your company offers a SMART scheme then your gross salary will be reduced to take into account the additional tax relief (and save the employer NI in the process).

If your gross salary and taxable salary are the same then I would suggest that you will need to tell HMRC about your pension contributions. If you don't already do self-assessment then a letter to your tax office should do and they will adjust your tax code accordingly. Note, this will not get the money into your pension but back in your pocket. If you want it to get in to your pension you will have to put it there.

Worth checking with your company/HR/reading the company pension literature first.

xylophone

A group personal pension?

https://www.moneyadviceservice.org.uk/en/articles/group-personal-pensions

http://www.accountingweb.co.uk/anyanswers/question/govuk-auto-enrolment-misinformation

Daniel_Elkington

Dear Simm122,

The payslip gives the answer here. If the contribution were made by way of salary exchange then it should read a £400 contribution by the employer. This 'salary exchange' mechanic is the SMART contribution discussed above. The employee cannot contribute to the pension via salary exchange, they can exchange salary for an equal contribution from the company to the pension.

I would suggest that either net-pay or relief at source were the two types here. The net pay method means that the payroll bureau deduct £200 from your salary, and you pay income tax on the remainder - therefore you got your tax relieved there. I'm assuming this is probably the most likely.

If they contributed by relief at source then they would pay you your net post-tax pay and then make a £160 net contribution to the scheme, the scheme provider would then gross-up the contribution to £200 and you could claim another £40 back by self assessment, making the gross pension input amount for annual allowance purposes a total of £240.

http://www.hmrc.gov.uk/manuals/rpsmmanual/rpsm05101330.htm

If you read from here onwards this describes the mechanisms.

I would imagine, from the fact that the amount is £200 and presumably in the 'deductions' column, that they are contributing via the net pay method and therefore there is nothing for you to do!

I would enquire as to the possibility to salary exchange, and if they don't offer it, tell them to get in touch with me to sort it out as it saves a lot of money.

jem16

Daniel_Elkington wrote: »

I would suggest that either net-pay or relief at source were the two types here. The net pay method means that the payroll bureau deduct £200 from your salary, and you pay income tax on the remainder - therefore you got your tax relieved there. I'm assuming this is probably the most likely.

The problem with that assumption is that the OP clearly stated that their gross pay and taxable pay were exactly the same. This would not be the case in a net pay arrangement as the taxable pay should be less than the gross pay.

jem16

simm122 wrote: »

I am in a group scheme I make a contribution of gbp 200 of which my employer matches. Upon my payslip gbp 200 is deducted and upon my pension contribution statement it shows that gbp 400 is added incl. company match.

Can you also check on your pension statement if tax relief is included in that £400?

within my payslip my gross pay is identicle to my taxable pay

That would then suggest you are paying into a Group Personal Pension and the pension provider is applying basic rate tax relief. If this is the case then you need to claim the higher rate tax relief from HMRC.

Can you just clarify the year to date totals of gross pay, gross taxable pay, tax paid to date - these might help because there is a bit of confusion with what you say appears on your pension statement and your payslip.

xylophone

The OP says that he is in a Group Personal Pension Scheme.

https://www.moneyadviceservice.org.uk/en/articles/group-personal-pensions
"Group personal pension - How does it work?

In a group personal pension, the scheme is run by a pension provider that your employer chooses, but your pension is an individual contract between you and the provider.

The provider claims tax relief at the basic rate on your contributions and adds it to your fund. If you're a higher or additional-rate taxpayer, you'll need to claim the additional rebate through your tax return."


http://webarchive.nationalarchives.gov.uk/+/http://www.hmrc.gov.uk/pensionschemes/annual-allowance/diff-methods.htm

"There are three main methods getting tax relief on the contributions you make to a pension scheme, which follow from the way your contributions are paid. These are:

net pay arrangement

Relief At Source (RAS)

making a claim to HM Revenue & Customs (HMRC)

If you are a member of your employer's occupational pension scheme it will almost always be the net pay arrangement.
If you pay into a personal pension scheme it must use RAS. This includes Group Personal Pensions (GPP) or Stakeholder Pensions (SHP) that your employer may organise for you."

http://www.accountingweb.co.uk/anyanswers/question/govuk-auto-enrolment-misinformation

"It is not really a matter of choice for the employer - either the scheme is an approved occupational pension scheme or it isn't.

"An employer cannot choose to operate the net pay arrangement unless they have had prior approval for their scheme. In this context, I mean that it is an approved occupational scheme - not a personal pension, group personal pension, or stakeholder scheme.

I agree that it is wise to check the P60. If the taxable pay shown is lower than the gross pay then this is an indicator that the net pay arrangement has been applied. That is because the net pay arrangement does not affect the NIC calculation - only tax relief is given through the payroll, NICs are still charged on the full gross pay. If the net pay arrangement has been applied then no further tax relief can be claimed via the tax return.

I think this is what mhtax intended to mean in his post, but that's not quite what he said: "If any extra tax relief is due there will be a difference in gross salary for tax as opposed to national insurance."

On the contrary, if there is a difference between the taxable and NICable pay, then it is likely that the net pay arrangement has been applied and no further tax relief would be due. If the taxable and NICable pay are the same, then further tax relief may be due because the net pay arrangement cannot have been applied."

jem16

xylophone wrote: »

The OP says that he is in a Group Personal Pension Scheme.

He doesn't quite say that but I would hazard a guess that he means that and Group PPs are always paid with Relief at Source.

simm122 wrote: »

I am in a group scheme

xylophone wrote: »

I agree that it is wise to check the P60.

Any current payslip will do but the yearly to date totals will give more of a clearer picture, especially the tax paid and gross pay/gross taxable pay.

xylophone

He doesn't quite say that

True - he refers to a "group scheme" - I suppose by "group" he could mean "occupational" but the additional information supplied about the sums on the pay slip doesn't seem to accord with this being the case - I, too, am assuming that this is a GPP.

Perhaps the OP will clarify in due course.

simm122

Hi all - really appreciate your assistance on this. validation on a couple of points.

The pension is a group personal pension with SW
The yearly totals are identicle on my payslip i.e. gross pay and taxable pay
upon my pension statement the tax relief is not disclosed it simply states GBP 398.97 (which is the exact amount) no reference to relief just states pension contribution and then the month?

Hope this clarifies