Multiple jobs, tax and pension

gavcradd

Hi, just looking for confirmation that I have my ducks in a row here.

I have two jobs - my main job using my full tax code and a second job that is far more flexible, using the tax code BR. Taxable income for both are under the 40% threshold individually, but added together they go a few thousand pounds over the 40% threshold. I therefore assume that I owe HMRC an additional 20% on anything over this threshold. Both jobs are PAYE, I've never done a self assessment.

However - as well as workplace pensions for both, I also have a stakeholder pension that I pay £100 a month into. For this, the pension company add the 20% tax back onto this so I effectively get £125 per month going into the pension, or £1,500 per year. However, I'll be paying 40% tax on more than this amount so I assume I should be able to claim back the extra amount?

So...and this is where I'm getting perhaps slightly confused. I owe HMRC money for additional tax, but then because of this, they owe me money back for the extra tax on the pension contributions - is that correct?

Rough estimated figures - if I've gone £2,500 over the 40% threshold, I will owe them £500 in extra tax (because I've only paid 20% on it but should have paid 40%), but then I've made £1,200 in personal pension contributions (12 x £100) so they owe me (I think...) £300 for the extra 20% tax, meaning I only owe £200 overall. Does that sound roughly correct?

If so, can I just contribute another £x to my pension today and bring the tax liability down to zero? e.g. add another £1000 to my pension today, claim the 40% tax relief and wipe out what is owed?

Thanks in advance :-)

Dazed_and_confused

You are broadly along the right lines.

The stakeholder pension is a "relief at source" scheme so these contributions will increase the amount of basic rate tax you can pay (basic rate band is increased by the gross contribution, £1,500 in your example). Which in turn can reduce the amount of higher rate tax payable.

If you pay another £1,000 in this tax year this will get £250 tax relief added by the pension company (courtesy of HMRC) and this will increase your basic rate tax band by another £1,250.

Remember you don't necessarily pay tax on your "salary", it is the figure which will be on your P60 which counts. So for example your salary at the main job might be £30,000 but if you pay 5% into a "net pay" workplace pension then your taxable salary is just £28,500. You should be able to see the taxable pay on your March payslip. Same possibly for the flexible job.

To keep things as upto date as possible you should let HMRC know what you think you will earn from each job in 2019:20 and what you expect to pay into your stakeholder pension. HMRC do not allow pension tax relief for one tax year in the tax code of a different tax year but they will estimate your pension tax relief for 2019:20 and include that as a provisional amount in your 2019:20 tax code so best to give them as accurate an estimate as possible.

If you are still likely to pay some higher rate tax in 2019:20 they may make an adjustment to your main 2019:20 tax code so you pay a little extra during the year. This is preferable to paying 40% on everything from the flexible job and then getting some back.