Tax code changes following personal pension enrollment

msallen

Hi all

I wasn't sure whether this was better on the Saving Tax or Pension board, but as this one gets more traffic....

My gross salary in £48,600, but with bonuses is likely to come in around £52,000 by year end. I have recently opened a SIPP (as my employers auto-enrollment option doesn't start till early next year) into which I'm paying £800 per month net, topped up to £1,000 with BR relief. I will make 10 monthly payments this (incomplete) tax year, and I had calculated that this would take me out of HR tax.

I just telephoned HMRC to inform them of this and get my tax code altered. I had assumed that as I was getting BR relief via the pension platform, that I would get a tax code change for the other half (or £5,000), and in my simplistic mind I though my tax code would simply go up by 500. However I have been told it will go from 1100L to 1380L.

Can someone who understands such things explain how this is calculated please.

Thanks.

bigadaj

So the increase to your tax code means you earn another £2800 before paying tax. If you are a higher rate taxpayer this means that the actual sum you get back/ don't get taxed on is 40% of that increase, so would be £1,120 for the year, so just under £100 a month. If all your contributions are at higher rate then you should not be paying tax on £200 per month, after basic rate tax relief, so your tax code should be higher.

You can log into your personal tax account and alter this yourself, or simply wait to resolve the difference at the end of the tax year.

It may be that they don't acknowledge your bonus currently, how certain is this for example, and so your contributions are befitting from only basic rate tax relief which again would be resolved at the end of the year.

msallen

Thanks bigadj. The figures tally with what you've said - it was my initial assumption of a tax code increase of 500 that was wrong.