Tax relief on one off employer pension contribution to DC scheme?

BennyBrownBoy

Hi All,

In April 2016 I took a new role in the company I work for. For reasons I won't bore you with, but essentially as a sweetener to take the role, the company paid a one of payment of £10,000 into my DC pension.

This did not show on my salary slips etc. but simply appeared in my online pension as a one off payment.

I call the HMRC last week to enquire whether or not I would be able to claim tax relief on this contribution (I am a higher rate tax payer). To my surprise the were simply "unsure" and suggested that following the end of the 2016/17 tax year and after I had completed my return, that I submit proof of the payment and "see what happens".

I was surprised that they could not be more definitive but the essence - at least for the person I was speaking with - was the fact that it was a contribution made by my employer directly and not me personally. This seemed to be the sticking point.

Can anyone indicate what the likely outcome here is?

If I did get tax relief - how much would it equate to in cash terms and could it be paid to me by cheque rather that a tax code change?

Thanks in advance.

dunstonh

I call the HMRC last week to enquire whether or not I would be able to claim tax relief on this contribution (I am a higher rate tax payer). To my surprise the were simply "unsure" and suggested that following the end of the 2016/17 tax year and after I had completed my return, that I submit proof of the payment and "see what happens".

Employer contributions do not grant you tax relief.

I was surprised that they could not be more definitive but the essence - at least for the person I was speaking with - was the fact that it was a contribution made by my employer directly and not me personally. This seemed to be the sticking point.

I'm not as surprised as you as you can't expect the telephone people to know everything.

Can anyone indicate what the likely outcome here is?

If I did get tax relief - how much would it equate to in cash terms and could it be paid to me by cheque rather that a tax code change?

The employer benefits from the effective tax relief. Not you. It is a business expense for them and lowers their corporation tax.

You get no tax relief.

BennyBrownBoy

dunstonh wrote: »

Employer contributions do not grant you tax relief.



I'm not as surprised as you as you can't expect the telephone people to know everything.



The employer benefits from the effective tax relief. Not you. It is a business expense for them and lowers their corporation tax.

You get no tax relief.

Thanks dunstonh - appreciate the quick response.

Aretnap

Indeed, tax relief is a refund of tax you've already paid. And you haven't paid any tax on the £10K.

With a standard employee contribution, £10K would have been paid as salary, you'd have paid £2000 tax on it (or more, depending on your tax band), leaving you with £8000. You then pay that £8000 into your pension, and get the £2000 back as tax relief (more if you're a higher rate taxpayer).

(Of course in practice this is all done automatically and the money never actually enters you bank account - but in theory that's how it happens)

However, with an employer contribution the money goes straight from the employer to the pension provider - you never receive it (even in theory) and you never pay any tax on it. There's therefore no tax relief to claim - because you didn't pay the tax in the first place.

Taking the £10K as an employer pension contribution rather than as salary is still advantageous, because you don't pay national insurance on it

martinsurrey

Aretnap wrote: »

Indeed, tax relief is a refund of tax you've already paid. And you haven't paid any tax on the £10K.

With a standard employee contribution, £10K would have been paid as salary, you'd have paid £2000 tax on it (or more, depending on your tax band), leaving you with £8000. You then pay that £8000 into your pension, and get the £2000 back as tax relief (more if you're a higher rate taxpayer).

(Of course in practice this is all done automatically and the money never actually enters you bank account - but in theory that's how it happens)

However, with an employer contribution the money goes straight from the employer to the pension provider - you never receive it (even in theory) and you never pay any tax on it. There's therefore no tax relief to claim - because you didn't pay the tax in the first place.

Taking the £10K as an employer pension contribution rather than as salary is still advantageous, because you don't pay national insurance on it

amended as the OP is a higher rate tax payer

With a standard employee contribution, £10K would have been paid as salary, you'd have paid £4,200 tax on it as a higher rate tax payer (and 2% NI), leaving you with £5,800 additional net pay. You then pay £8,000 into your pension (leaving you £2,200 cash short that month) the pension scheme them claims basic rate tax back (showing a £10,000 contribution into your scheme). Leaving you to claim the higher rate tax relief after the year end (£2,000) leaving you £200 down due to NI overall.

the way it has been done is 100% the correct way, avoids timing issues and net loss issues for both ee an er

jamesd

You don't get or need to claim any tax relief directly for an employer contribution. However, if they had paid you the money directly you would have had to pay NI and income tax so in effect you did save on it.