Advice Needed SIPP Contributions Income Earned

TASKSTAR

Hi
Im working 34, 14000k Earnings, Have a work pension £70 Mth. Trying to look at increasing pension to save more for future. But not sure weather to add to SIPP or can I increase workplace contributions. Do they both type of contributions reduce or raise my income the same for Working Tax credits. Or does it not change my income as Both types of contributions will be After Tax instead of direct from employer.

Dazed_and_confused

If they are both "relief at source" contributions then I can't see why there would be any difference.

Have you read the WTC renewal guidance notes on gov.uk?

xylophone

The SIPP operates "relief at source"

Does your workplace pension operates "relief at source"?

https://www.entitledto.co.uk/help/tax-credit-pension-contributions

If both are "relief at source" you enter your net contribution plus tax relief. This gives the gross contribution.

Remember that for the purposes of tax relief, the your total contribution cannot be more than your gross relevant earnings.

TASKSTAR

So the Pension payments are before Tax and NI and the Sipp would be after Tax NI. So I know I can claim the Gross/ E.G. I pay £800 the Gov tops upto £1000. But if I paid £3000 over the year into a Sipp. Would my income for my working Tax credits be the same or reduced or more?

I ask as a Sipp is not counted as a stakeholder pension as gov says the reduce your income. Im so confused.

Albermarle

You should increase your workplace pension contribution rather than opening a separate SIPP as you get an extra gain from paying less NI .

zagfles

Sorry quite complicated...

Any pension contributions reduce your income for the purposes of tax credits (and universal credit). However evidence shows that tax credits staff don't understand this, and you can end up with a load of hassle.

Firstly, you need to understand for certain how your workplace pension contributions are taken. There are 3 possibilities:
1) Salary sacrifice - your salary is reduced and your employer makes the contribution. Your P60 shows your reduced salary. You save both tax and NI. You can't go below minimum wage after the sacrifice.

2) "Net pay". Your contribution is taken from your pay before tax is applied, but after NI. You get tax relief automatically in your payslip. Your P60 will show your income after your pension contributions have been deducted, as in 1). You don't save NI, NI is charges on your entire income.

3) Relief at source (RAS). Your pension contributions are taken after tax have been deducted. No tax or NI relief in the payslip. The pension scheme claims basic rate relief. This is like how a SIPP works.

You should be able to work out which from your payslips and pension statements. If not post a couple of consecutive payslips with the tax/NI figures, tax code and cumulative totals.

If it's 1 or 2, it's easy for tax credits. Just declare your P60 income, pension conts are already deducted.

If you made SIPP conts as well, you can deduct the grossed up amount from your income - google TC825. Expect some hassle, because they'll query why your figures don't match theirs. The claim/renewal process is complete rubbish, there is no way to tell them you've deducted pension conts, you can't send them the TC825 with the renewal (apparently they bin it if you do) and the online system is no better.

So you have to submit with figures that are massaged as instructed on the TC825 but with no explaination. They then generally almost accuse you of fraud - they write saying your figures don't match, and they'll be using their figures unless you provide proof within a month or so (in a letter sent second class and dated about 2 weeks before it arrives!).

If it's 3), it gets worse. You can deduct the grossed up amount just like a SIPP, as it uses the same RAS method. However, the staff seem to have been trained to trot out the "you can't deduct workplace pension contributions" from your income. This is wrong. You can if it's a RAS scheme. People have reported loads of hassle with this on the benefits board.

So basically - it's far easier if you have 1) or 2) above to use your workplace scheme for all your pension conts. Then you just declare your P60 income and no hassle. HOWEVER - note that if you contributions take your income below the personal allowance, you don't get tax relief as you don't pay tax, in which case it might be better to use the SIPP for the excess. (you do get tax relief with a RAS scheme even if you don't pay tax).

If you have 3) then it'll be hassle whatever you do...but you need to stick to your guns when tax credits tell you can't deduct contributions. You can. As long as you're sure it's a RAS scheme.

TASKSTAR

Dear Zagfles,

Thank you so much for all that info. I want to try Invest in markets in Sipp, but Im so worried now that Ill be worse off, as they might not accept my Income is lower due to pension payments in Sipp. Leaving me shooting myself in foot using Sipp.

thanks to all above to

Zag, Albermarle, xylophone, Dazed and confused you are all very kind. I wish working TC would have document to set my mind at rest before giving up the money. As its not like I can take it back once I pay

NedS

I'd like to add my own personal experiences to this as there seems to be very little accurate and relevant information available on the internet.


From 2013-2018 I have contributed to a SIPP and claimed tax credits. Each year I have notified tax credits of my pension contributions as they are deductible. Every year they have accepted what I've told them but have been unable to successfully deduct them at the end of the year and I have had to request a mandatory reconsideration in writing, presenting pension statements, at which point they accept they are deductible and everything is good, eventually. So yes, pension contributions are fully deductible and you'll get the tax credits eventually if you fight for it. I think the staff understand they are deductible but the system just overrides what you've told them with the RTI information HMRC receives from the employer.



Then last year I moved onto Universal Credit, thinking it would be easier dealing with this on a monthly basis than having to wait to the end of each tax year to fight the tax credits system. The UC people simply did not understand that pension contributions were deductible. I was refused at mandatory reconsideration and eventually we went to tribunal where DWP legal accepted that pension contributions are deductible from income for UC. So now I simply report my SIPP pension contributions each month and my monthly UC payments are correct. We got there eventually and now things couldn't be simpler. With the UC system, UC payments are calculated on a monthly basis so you will need to make monthly payments to your pension for them to be considered that month in order to receive the full UC benefit (they are only deductible from income in the UC month in which they are paid). If you do not make monthly pension contributions (e.g, one large annual payment) then the UC system will not work as well for you as Tax credits will which looks at your income/pension contributions on an annual basis over the tax year..



So yes, pension contributions are deductible for both Tax Credits and Universal Credit purposes , but be prepared to fight to get the system to recognise it. To be fair, the Tax Credit system was less of a fight as they understood the legislation but could only seem to sort it out after the tax year had ended whereas the UC system seems to have no comprehension of what you are telling them so be prepared to appeal and explain it to a judge at tribunal who hopefully has a better grasp of the legislation.