Tax Relief on Employer Pension for Non Tax Payer?

snowqueen555

I am going part time in April so my salary will be around £12k, and plan to bump up my pension contributions to around 25% of gross salary (employer adds 10% = total 35%).

I didn't think about how tax relief works, will the whole 25% amount I pay be eligible for an additional 20% relief even though I didn't pay any income tax anyway because I will be below the £11.5k threshold?

Bear in mind my pension will be using salary sacrifice as well, so after that my income would look like £9-10k.

Thank you for your time!

jennyjj

snowqueen555 wrote: »

I am going part time in April so my salary will be around £12k, and plan to bump up my pension contributions to around 25% of gross salary (employer adds 10% = total 35%).

I didn't think about how tax relief works, will the whole 25% amount I pay be eligible for an additional 20% relief even though I didn't pay any income tax anyway because I will be below the £11.5k threshold?

Bear in mind my pension will be using salary sacrifice as well, so after that my income would look like £9-10k.

Thank you for your time!

OK...
If it were a 'Group Personal Pension' your own contributions would come out of net pay after (little or no) tax paid. The GPP provider would claim a tax refund and would add that to the fund. That's correct and ideal if you are below tax threshold anyway. HMRC are happy with that and you win.
If it's an 'Occupational Pension Scheme' your contributions come from Gross pre tax pay and you get no tax claimed back. Not so good for you if you don't earn the tax relief band as you gain nothing.
GPP and OPS are effectively equivalent for a standard rate tax payer who earns his tax free allowance or more
BUT... If it's a salary sacrifice scheme, it's mostly similar to an OPS in that you won't have paid tax on contributions and your scheme cannot claim any tax back ( as all contributions would be employer contributions which are ineligible ) You'd save a few pounds on National insurance with a SS scheme, because the amount paid for NI purposes would be less. You MAY be gifted the NI savings that your employer makes, but that is at their discretion.
You need to know which type of scheme it is and how much of your contributions are sacrifice and how much are AVCs.
JJ

snowqueen555

It is salary sacrifice. That is a shame, sounds like I'd only save a few £ on NI, I'll have to reconsider a few things.

snowqueen555

Would I be able to claim tax relief paying to a sipp? How is it claimed, and how do HMRC check your earnings etc?

I am aware that even those who do not earn money can claim some tax relief on pension contributions, so i am guessing those on a low slary can do the same?

OldBeanz

You pay into a SIPP and the 20% tax relief is automatically added either straight away or within about 6 weeks. In the short term it is up to you to ensure you do not exceed the statutory limits.

jamesd

HMRC gets monthly reports from your employer saying how much you have been paid and also an annual return comparable to your P60. All UK employers have to do this.

It appears that you might be thinking that paying into a personal pension beats the work scheme. It doesn't.

In the work scheme you'd be paying in 25% and getting 10% added. That is 40% of what you pay in. Plus NI saving. In a SIPP you would only get 25% added.

However, do you need to pay in the full 25% to get your employer's 10%? If not, the best approach is to pay just enough into the work scheme to get the 10% and pay the rest into a personal pension outside work.

michaels

jamesd wrote: »

HMRC gets monthly reports from your employer saying how much you have been paid and also an annual return comparable to your P60. All UK employers have to do this.

It appears that you might be thinking that paying into a personal pension beats the work scheme. It doesn't.

In the work scheme you'd be paying in 25% and getting 10% added. That is 40% of what you pay in. Plus NI saving. In a SIPP you would only get 25% added.

However, do you need to pay in the full 25% to get your employer's 10%? If not, the best approach is to pay just enough into the work scheme to get the 10% and pay the rest into a personal pension outside work.

True although 12% NI and between 0 and 13.8% of employer ni may also need to be factored into the calcs....

jamesd

Yes, there will be 12% employee NI saving. Might be more than 8% from the employer 13.8% to make sacrifice better for the rest as well.