HR Tax Relief via code

AlanP_2

HR taxpayer received coding notification for 2019/20 that includes £3750 for pension contributions.

How I do I check that is the correct amount? Is there a formula to relate that back to Net / Gross SIPP contributions?



Thanks

TrickyDicky101

HMRC usually base it on previous contribution history (typically notified to HMRC through self assessment). It's your contribution data, so what did you contribute in 2017/18 and 2018/19?

AlanP_2

TrickyDicky101 wrote: »

HMRC usually base it on previous contribution history (typically notified to HMRC through self assessment). It's your contribution data, so what did you contribute in 2017/18 and 2018/19?

Varying amounts across both tax years and even month to month.

I realise that they use previous values along with what they have been notified about as planned for the year but am hoping that there is a simple formula that I can use to check what they are allowing against actual contributions.

Brynsam

It's a simple bit of arithmetic rather than a 'formula'. Work out how much you contributed to your pension over the tax year 2017/18.

Did you earn enough that all your contributions fell into HRT (looking at the online calculation of your tax for 2017/18 should make that pretty easy). If they did, and you pay 40% tax, multiply these amounts by 20% (the SIPP provider has already claimed the first 20% on your behalf and added that to your pot).

If only some of your contributions over the year could be offset against HRT, then that's your starting figure for the 'extra' 20% relief.

HMRC will revisit when you submit your 2018/19 self assessment form, and revise if necessary.

Paul_Herring

How I do I check that is the correct amount?

Bear in mind that this is basically a 'provisional' figure.

Whether it's actually the right amount, to the penny, (it's not unlikely that it won't be) will depend on what you actually earn, and what you actually contribute to pensions, over the year it covers, since it's a best-guess figure to apply to the future, based upon the past.

The only time the accurate calculation can be done is after the period upon which it applies - i.e. when you do a self-assessment after tax-year-end.

Given what you know, which HMRC may not, for that forthcoming year, If it 'looks right' don't worry overmuch about it, if it 'looks wrong' (you may not earn as much/contribute as much/earn more/contribute a lot more,) you may want to ask them to change it.

Albermarle

By my calculation £3750 increase tax code for a HRT , should relate to an annual pension contribution ( out of net pay + with 20% already added by the pension provider ) of £6000.
As said it is only an estimate , based on previous years contributions .
If your pension contribution this tax year is more than £6K you will get a rebate later . If it is less you will owe HMRC.

AlanP_2

Albermarle wrote: »

By my calculation £3750 increase tax code for a HRT , should relate to an annual pension contribution ( out of net pay + with 20% already added by the pension provider ) of £6000.
As said it is only an estimate , based on previous years contributions .
If your pension contribution this tax year is more than £6K you will get a rebate later . If it is less you will owe HMRC.

That's the figure I hoped it would be so all looking good.

What is the calculation to get from £3750 code increase to £6000 gross contribution?

Albermarle

Well if you add £6000 to a DC pension , the provider will add the basic rate tax relief of £1,500.
A HRT can then claim back the same amount of tax relief again .
One way is to increase your tax free allowance by £3750 , so you will reduce your tax bill by £3750 X 40% = £1500.

AlanP_2

OK, I can see that - thanks.

However, it is a £6k gross contribution so £4800 plus the 20% added by the provider.

Based on your calculation should it then be a 3000 addition to the code (3000 * 40% = 1200)?

Albermarle

Based on your calculation should it then be a 3000 addition to the code (3000 * 40% = 1200)?

Yes Correct but could be this years code is based on last years pension contribution, which was higher ?
Or if you filled in a Self Assessment form you may have filled it in incorrectly . It has been well documented on here that the form is confusing - not very clear for example in your case to put £6000 or £4800

Dazed_and_confused

What is the calculation to get from £3750 code increase to £6000 gross contribution?

There is no such calculation.

It is too complicated for that.

There are two things to consider, firstly the amount of higher rate tax relief estimated to be due.

Secondly the tax rate which will be payable at the employment/pension the tax code is going to be used against. The person may be due higher rate relief overall but only pay basic rate tax on their PAYE income that the tax code relates to.

So using your original figure of £3,750, and assuming this is the coding allowance, not a pension "contribution" then it could be allowing £750 of higher rate relief (where only 20% tax is being paid on the PAYE income the code applies to).

Or it could be £1,500 relief if there is sufficient 40% tax being paid on the PAYE income the code applies to.

It could also be a myriad of other amounts of relief if the person concerned is a Scottish resident for tax purposes, pays additional rate tax or is paying some 20% and some 40% tax on the PAYE source.