Seld Assessment and pension contributions

BananaRepublic

In the last tax year I made a £24,000 contribution (plus £6,000 tax relief) to my SIPP in addition to ~£6,000 paid in to a company pension scheme by my employer. In the tax return, section 4, I have to enter "Payments to registered pension schemes". Am I right to assume this excludes the company contribution and hence in my case it is £30,000?

I could not get the answer from the explanatory notes.

NordicNoir

BananaRepublic wrote: »

In the last tax year I made a £24,000 contribution (plus £6,000 tax relief) to my SIPP in addition to ~£6,000 paid in to a company pension scheme by my employer. In the tax return, section 4, I have to enter "Payments to registered pension schemes". Am I right to assume this excludes the company contribution and hence in my case it is £30,000?

I could not get the answer from the explanatory notes.

Yes, it is just the £30k.

greenglide

The explanatory note tell you to enter pension contributions made directly by you, grossed up to include the tax relief. You do not any amounts which your employer has deducted from your pay and paid to the scheme - the tax relief has already been given.

There are a number of questions about self assessment in the past couple of days. The clock must be ticking - I did mine on Sunday!

jamesd

In what way were payments made by your employer? It is not always true that you should not tell HMRC.

If the payments were "employer contributions", like those from a salary sacrifice scheme, then you would not tell HMRC. If instead they were first deducted from your pay then handed over by your employer you would tell HMRC because you may be entitled to higher rate tax relief. Some schemes deduct from gross pay but even those can give you too little tax relief if you are a higher rate tax payer and the work contribution is from part higher rate and part basic rate pay while you have non-work income as well.

BananaRepublic

jamesd wrote: »

In what way were payments made by your employer? It is not always true that you should not tell HMRC.

If the payments were "employer contributions", like those from a salary sacrifice scheme, then you would not tell HMRC. If instead they were first deducted from your pay then handed over by your employer you would tell HMRC because you may be entitled to higher rate tax relief. Some schemes deduct from gross pay but even those can give you too little tax relief if you are a higher rate tax payer and the work contribution is from part higher rate and part basic rate pay while you have non-work income as well.

James, I am not sure I understand your post. Pension contributions from my employers always consist of contributions from the employer (which are in addition to the salary, and which are taken without deductions for tax i.e. income tax and NI) and contributions from me, which are taken from the salary, after tax. In the latter case the pension provider claims back the basic rate of tax.

It sounds like you think I should add the contribution that I make via my employer, which is deducted from my payslip, and that is how I would claim back higher rate tax if any was paid.

I noticed from earlier tax returns, completed by an accountant for me, that my contribution to the pension via my employer was not declared.

Sounds like I should contat HMRC to confirm.

bowlhead99

BananaRepublic wrote: »

James, I am not sure I understand your post. Pension contributions from my employers always consist of contributions from the employer (which are in addition to the salary, and which are taken without deductions for tax i.e. income tax and NI) and contributions from me, which are taken from the salary, after tax. In the latter case the pension provider claims back the basic rate of tax.

It sounds like you think I should add the contribution that I make via my employer, which is deducted from my payslip, and that is how I would claim back higher rate tax if any was paid.

The 'contributions from me' via your payslip have not saved you any tax at source, and the pension provider has grossed them up for you there ; that is also exactly what has happened with your sipp - they were paid as contributions from you, which had not had any deduction at source, and then the pension provider grossed them up for basic rate relief.

So, both types of payments which you made out of your net (already taxed) pay, get treated the same way. With the ones on your payslip, the employer physically arranged to pay them to the pension company on your behalf, but it was still on your behalf from your after-tax money, with no relief given other than what the pension company gave you in their gross up. It's just like the SIPP contributions you made which have also been paid to the pension company with no relief given other than what the pension company gave you in their gross up.

So, say you had £6k gross in your work pension (£3k gross from your employer and £3k gross / £2.4k net from you out of your taxed salary). And you had £30k in your personal pension (£30k gross / £24k net from you out of your taxed salary).

The amount to go on the form would be the aggregate gross amount of payments to all registered pension schemes which were made yourself out of your taxed income: i.e., £33k. The only bit that you don't want HMRC to consider is the £3k from your employer's own pocket which was made completely gross and does not need any tax relief to be considered.

By running the full £33k through the tax computation you are right that HMRC will be able to consider whether you need any further tax relief amounts: i.e. they know you earned £50k gross salary but out of that you have £33k gross into a pension leaving your effective salary at only £17k, thus if you have PAYE'd tax on the full £50k of gross salary you should have got some tax at high rate and some tax at low rate, whereas the actual tax relief you got via your two pension providers together was only 20% of the £33k contribution (the £6k SIPP provider and £0.6k workplace pension provider).

I noticed from earlier tax returns, completed by an accountant for me, that my contribution to the pension via my employer was not declared.

Sounds like I should contat HMRC to confirm.

Yes, your accountant might have erroneously presumed that what was paid over by your employer as 'your' contributions were done pre-tax with no relief needed, rather than post-tax with relief given by the provider.

In the post above, you mentioned about how you'd claim higher rate tax 'if any was paid'. If no higher rate tax was paid or needed to be reclaimed anyway, the final tax computation figures at the end of the tax return would have still passed the accountant's 'sense check' because the amount you end up with inside and outside the pension and the total tax you end up paying for the year, would still work.

If you *have* paid higher rate PAYE in recent years, but the mechanism for your personal workplace contributions in those years was simply your net pay being given to pension provider who grossed it up for basic rate tax, and the amount of that contribution never went on a tax return, then HMRC does not know you have potentially got some missing higher rate relief owed to you, so worth chasing with HMRC.

If you know you have only been a lower rate taxpayer in those years anyway and do not have complex tax affairs with other income tax reliefs in the picture - then your returns (though technically inaccurate) have likely not led to an over or under claim of tax, and it may not be necessary to follow up.

NordicNoir

jamesd wrote: »

Some schemes deduct from gross pay but even those can give you too little tax relief if you are a higher rate tax payer and the work contribution is from part higher rate and part basic rate pay while you have non-work income as well.

If a pension contribution is paid from gross pay, i.e. deducted before tax is calculated, it follows that there is no tax relief to claim, as no tax has been paid. The pension contribution has effectively 'disappeared' from any earnings for that tax year and all tax calculations, regardless of band, are based on the reduced earnings.

There would be nothing to claim on a tax return.....or have I missed something (which is quite possible!)?

NordicNoir

BananaRepublic wrote: »

.....and contributions from me, which are taken from the salary, after tax. In the latter case the pension provider claims back the basic rate of tax.

I noticed from earlier tax returns, completed by an accountant for me, that my contribution to the pension via my employer was not declared.

Are you 100% sure that your company contributions are deducted from your net pay, after tax has already been deducted?

It seems odd that your accountant has not included it on previous returns if this is the case. Can you check a payslip calculation to be sure?

Is it possible that you have been told that the deductions have been made under a 'Net Pay Method', which in fact means that the contributions have been deducted before tax (as opposed to relief at source, where the deduction us made from pay after tax)?

BananaRepublic

Michelle, I did say that "contributions from the employer (which are in addition to the salary, and which are taken without deductions for tax i.e. income tax and NI)", but it's easy to miss text in a thread with multiple posts.

Bowlhead: I understand how the pension contributions are taxed, what I was unclear about is exactly what the tax return required in the given box. There is sometimes ambiguity in the HMRC explanations. Thank you for confirming that it also includes my contribution via the employer. It does look as if in the past at least one accountant missed that out.

It does appear that not including my contribution via the employer is not an offence.

BananaRepublic

MichelleUK wrote: »

If a pension contribution is paid from gross pay, i.e. deducted before tax is calculated, it follows that there is no tax relief to claim, as no tax has been paid. The pension contribution has effectively 'disappeared' from any earnings for that tax year and all tax calculations, regardless of band, are based on the reduced earnings.

There would be nothing to claim on a tax return.....or have I missed something (which is quite possible!)?

I believe that the employer's contribution, which is paid before tax is deducted, does form part of the annual allowance which is currently the lower of £40,000 and your salary for the year. Hence it does not disappear, given that you may need to use previous year's allowances etc.

NordicNoir

BananaRepublic wrote: »

Michelle, I did say that "contributions from the employer (which are in addition to the salary, and which are taken without deductions for tax i.e. income tax and NI)", but it's easy to miss text in a thread with multiple

Apologies, I think I did not make my question clear.

Initially, you mentioned that an employer made some contributions to your pension. Hence my first reply to not include it on your tax return, as it appeared to be employer only contributions.

Subsequently, it became apparent that this was in fact part employer contributions and part employee contributions. You stated that the employee part was taken from your net pay, after deduction of tax.

I queried if you were 100% sure of how your employee contributions were made as it makes a big difference to your tax return.

The main ways that an employee can make contributions to their company scheme are:

Salary sacrifice - salary is reduced by contribution, no tax or ni paid, contributions are considered all employer. Nothing needed on tax return.

Net pay method - employee deduction made before tax, nothing to be added to tax return as no tax was paid on the contribution.

Relief at source - deducted from net pay after tax, pension company gets the basic rate relief directly and employee needs to add to tax return for higher rate tax relief.

You have said that you make the contribution as 'relief at source' whereas as your accountant has treated it as 'net pay method' - I was just trying to check that you were 100% sure of the method used by your employer.