Pension Relief in Tax Code

A1Dan

Bit confused by this, hoping somebody can clarify. The below is my (limited) understanding of the situation, but if anybody spots somewhere I'm talking nonsense, please let me know!:

I changed jobs half way through the 2015-16 tax year. My original job had a pension scheme which was deducted after tax, and the tax relief then paid into the pension scheme at 20%. I had paid £1,200 in that year, and as I pay higher rate tax, my tax return then included an increase of £1,500 in my basic rate limit to cover the difference. This part all makes sense to me (just about!) - and my final tax for that year looks about right.

The job I switched to deducted pension prior to tax. As I understand it this arrangement is much more straight-forward, and effectively has no further implications - you never pay the tax and no relief or reimbursement is required.

However, looking back at my PAYE tax code notification for 2016-17, I see there is Personal Pension Relief of £750 added to my tax free amount. This appears to have resulted in me underpaying tax for the year. Am I right in thinking that:

a) This Personal Pension Relief is included in my tax code as an attempt to pre-empt me requiring such relief in my final tax calculation, based on what has occurred in previous years

and so

b) it should not really have been in there, given that I no longer pay tax on pension contributions?

Looking at my new code for 2017-18, the £750 is once again included. Should I get in touch with HMRC and get them to revise it, to avoid building up an ever-increasing outstanding bill at the end of each year?

00ec25

yes, your understanding looks reasonable

- you were entitled to higher rate pension relief in the first job, but not in the second. However, HMRC were not informed of your change so did not withdraw the relief which had by then been included in your tax code, hence you have indeed underpaid tax

it is your responsibility to check your tax code and notify HMRc of any changes required

A1Dan

00ec25 wrote: »

yes, your understanding looks reasonable

- you were entitled to higher rate pension relief in the first job, but not in the second. However, HMRC were not informed of your change so did not withdraw the relief which had by then been included in your tax code, hence you have indeed underpaid tax

it is your responsibility to check your tax code and notify HMRc of any changes required

Thanks for that, makes sense!

On a related note, I always end up with extra to pay due to the child benefit charge.

It strikes me as odd that they are happy to increase you allowance based for things like pension relief and gift aid, based on the assumption they will continue, but they don't decrease it to take into account expected child benefit charge.

Obviously it all works out the same in the long run, once your returns are completed, but as far as I can see, in letting you build up a liability, they are just doing themselves out of cash in the short term, which I wouldn't expect from HMRC!