Tax Relief on AVC payments

FatherAbraham

Gadfium wrote: »

Thanks again for taking the time to respond.

The regular payments are taken before tax and NI. It's not those that I am querying though. Its a one-off lump sum payment that was paid by cheque.

I'll speak to the helpdesk people this week and clarify.

Sorry, I should pay more attention to what you'd written.

You don't have online access to the fund, so see what was invested when your net-funds cheque was received?

Warmest regards,
FA

greenglide

My scheme, which uses salary sacrifice, gives tax relief automatically for regular payments and also for one off payments when taken from the next salary payment (just normal tax relief in this case, not salary sacrifice) but one off payments by cheque (if the payment is above the monthly salary this is the only option) the tax relief cannot be given by the scheme because the scheme always has the relief given before they receive the contributions.

xylophone

If you are paying into a scheme that gives relief at source, decide how much you wish to contribute and pay it to the scheme net of basic rate tax - the pension provider will claim basic rate tax and if you are a higher rate tax payer, claim the higher rate through your SA or by contacting HMRC.

If the scheme does not give relief at source, decide how much you wish to contribute, pay the gross amount to the scheme and claim back all the tax relief through SA or by contacting HMRC.

Be careful of the situation in my post above.

mikesndbs

Hi

I am a 40% tax payer and have just been told that my in house ACV has only been giving me 20% tax relief.
Is it true that it should be 40%? seems too good to be true

Dazed_and_confused

You cannot receive 40% relief at source unless it is deducted from salary before tax in which case maximum tax relief is obtained immediately.

Otherwise you need to claim any higher rate relief, the extra 20%, from HMRC. But being a 40% payer doesn't necessarily entitle you to 40% relief on everything, you may only be £1 over the higher rate limit so would get no refund normally in that situation (too small an amount to qualify for a refund). The higher the wage the more chance of you getting maximum relief possible.

You can have your tax code changed to get this years tax relief as you go along but would need to contact HMRC about last year, 2016:17.

xylophone

You cannot receive 40% relief at source unless it is deducted from salary before tax in which case maximum tax relief is obtained immediately.

This system is "net pay" as opposed to "relief at source".


See
http://www.scottishwidows.co.uk/Extranet/Literature/Doc/FP0491

https://www.nowpensions.com/help-centre/faqs/general-information/whats-the-difference-between-net-pay-and-relief-at-source

http://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/member-contributions-tax-relief-and-annual-allowance/

There are some AVC schemes which operate "net pay" - see

https://www.pru.co.uk/rz/teachers/england-wales/avcs/tax-efficient-contributions/

Tax efficient contributions

Contributions come from your pay before being taxed, so the money you would normally pay as tax goes straight into your Teachers’ AVC instead.

The OP ( post 15) should check that his understanding about his particular arrangement is correct and if so, should contact HMRC regarding tax relief.

robin61

Gadfium. I am also in the BT Pension Scheme (B in my case) but I believe the AVC works the same for scheme C.
It's best not to make one off payments. It's best to pay regular monthly amounts I.e. via the Smart AVC scheme. That way it comes off your gross pay before either Tax or NI has been deducted. If you choose to make one off payments you will miss out on the NI relief.

You have to be confident you want to keep doing this until September as you are not allowed to stop paying in or reduce payments unless it's in the window which is every September. You can increase the payments at any time though.

I have never made a one off payment by cheque but I did once make a small one off contribution via my pay and I am pretty sure I ended up getting the tax relief because it reduced the amount on my P60 but not the NI relief. So I didn't do that again ! The tax relief worked the same way as Direct Share does as far as I could make out.

camelopardis

Just a little story that may be of interest to some:

I took early retirement last year from a large UK blue chip company with a final salary scheme. During the final year of my employment I entered into a salary sacrifice scheme where I paid nearly all my salary into AVCs. This saved me a huge amount in tax and NI.

Nearly a year after accepting an early leavers payment, I got a letter out of the blue from my old employer. It transpired that my contributions had reduced my salary below minimum wage and they were therefore legally obliged to send me a cheque - for thousands of pounds! Even though I'd already had the money paid as AVCs into my pension.

This may be of use to someone

AlanP_2

camelopardis wrote: »

Just a little story that may be of interest to some:

I took early retirement last year from a large UK blue chip company with a final salary scheme. During the final year of my employment I entered into a salary sacrifice scheme where I paid nearly all my salary into AVCs. This saved me a huge amount in tax and NI.

Nearly a year after accepting an early leavers payment, I got a letter out of the blue from my old employer. It transpired that my contributions had reduced my salary below minimum wage and they were therefore legally obliged to send me a cheque - for thousands of pounds! Even though I'd already had the money paid as AVCs into my pension.

This may be of use to someone

Hopefully it won't TBH. An employer who is in half competent will not allow you to Salary Sacrifice down to a level below minimum wage as they would be breaking the law.

You were lucky and have benefited, I doubt if they will allow anyone else who works there to do that again.

bigadaj

AlanP wrote: »

Hopefully it won't TBH. An employer who is in half competent will not allow you to Salary Sacrifice down to a level below minimum wage as they would be breaking the law.

You were lucky and have benefited, I doubt if they will allow anyone else who works there to do that again.

As a shareholder you'd expect some form of disciplinary action in the relevant HR or accounts department.