Pension Contributions for part of FY

shinytop

Hi, I have a question about pension contributions for part of next FY. I am an HR taxpayer but am planning to leave work 6 months into FY 2019/20. This means that my earnings will be below the HR threshold for FY2019/20. My employer won’t know this so will continue to assume my monthly earnings will continue for the whole FY.

I want to contribute as much as I can to my pension. I can make additional pension contributions in 2 ways; (1) fixed, where contributions are not subject to tax and NI or (2) variable, where contributions are not subject to tax but are subject to NI. I assume I should opt for (1).

My question is how will this work? Is it just a case of truing it all up via my 2019/20 SA Return? This must happen a lot as many people won’t leave work at the end of a FY. Is there anything I ought to be aware of or am I over-complicating this?

Linton

HMRC will calculate your tax at the end of the financial year as part of their standard processing and pay a rebate if appropriate. You do not need to do anything.


As you presumably wont be a higher rate tax payer next year it may be better to pay your extra pension this tax year.

Dox

shinytop wrote: »

Is there anything I ought to be aware of or am I over-complicating this?

The good news is that you are indeed over complicating it, as explained in the previous answer. Just remember that if your plans change and your work for more of the FY than expected (or get another job in the same FY), and thus remain a HR taxpayer, you'll need to claim any additional tax relief on pension contributions via your tax return.

shinytop

thanks

As you presumably wont be a higher rate tax payer next year it may be better to pay your extra pension this tax year.

yup, doing that too.

drumtochty

[FONT=&quot]The original poster is not over complicating things at all.[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]For instance, if they are in a final salary scheme, they will get 40% relief at source every month but in April 2020 when they do their tax return it may well be that HMRC will give them a bill for half the pension tax relief for 19 / 20 depending on the figures.[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]It therefore may be advantageous if they have the spare cash as advised above to up their 2018 / 2019 contribution if they have space in their annual allowance or any carry forward allowance that may be available in this period.[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]The other issue is that when I did that some years ago my employer at that time had closed the March pay run to new pension payments around the beginning of February. I put it in late January that year.
[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]Therefore, the original poster may have to get their skates on to optimise their pension payments for this tax year if there is room to pay more and they have the cash at hand.[/FONT]

Marcon

drumtochty wrote: »

[FONT=&quot]The original poster is not over complicating things at all.[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]For instance, if they are in a final salary scheme, they will get 40% relief at source every month but in April 2020 when they do their tax return it may well be that HMRC will give them a bill for half the pension tax relief for 19 / 20 depending on the figures.[/FONT]

Actually they are! It's obvious from the post (to anyone familiar with these things) that they are talking about defined contributions - you can't make variable contributions to a defined benefit scheme in the way they are describing.

xylophone

Actually they are! It's obvious from the post (to anyone familiar with these things) that they are talking about defined contributions - you can't make variable contributions to a defined benefit scheme in the way they are describing.

The OP says

I can make additional pension contributions in 2 ways; (1) fixed, where contributions are not subject to tax and NI or (2) variable, where contributions are not subject to tax but are subject to NI. I assume I should opt for (1).

Is he saying that his employer offers a choice of pension contributions through salary sacrifice (with an NI saving) or through deduction from salary before tax but not NI?

"Net pay" (rather than relief at source) can certainly be offered in a DC pension. This would mean that 40% relief was given automatically where appropriate.

https://www.nowpensions.com/help-centre/faqs/managing-contributions-scheme-administration/is-the-contribution-taken-before-tax-and-ni

shinytop

A bit more explanation. It's a DC scheme. I'm already in the process of maxing out my 2018/19 contributions including carry-over.

For 2019/20 I can (1) make fixed additional contributions, where I nominate the monthly amount in March and that's it until the end of the FY or I leave. In this case contributions are done before tax and NI; and/or (2) make one-off variable contributions each month that are not taxed but are subject to NI. My plan is to do (1) and contribute 75% of my salary (this is the maximum the company allows) and I'm assuming I will, when the dust settles and I do my 2019/2020 tax return get all my NI and tax back that my employer has taken where it is assuming I'll be working for the whole FY.

Dox

Doesn't matter what sort of scheme it is; the tax position will be adjusted automatically if OP stops earning/contributing during a financial year. If the arrangement is net pay (where contributions are taken before tax is levied on earnings), and OP stops earning during the year and thus becomes a BR taxpayer, any tax rebate given will take this into account. There's no complicated fiddling around adjusting tax for the individual. If the arrangement is relief at source, and OP becomes a basic rate taxpayer during the year, then no claim for HR relief needs to be made on their tax return.

Very simple!

shinytop

Right I've got it now and I understand the tax situation. It was the NI part of the calculation that was confusing me and I've now finally realised what I should have all along, that NI is calculated and paid (for me) monthly and there is no annual allowance or true-up.