Tax Credits - Pension Contributions

pollyanna24

I've just had my tax credits renewals queried as the amount HMRC say I have earned is different to the amount that I stated as earning.

I rang them up and after explaining that I had been told to deduct my personal pension contributions from my gross income, they agreed that this was correct and made a note of my amended salary.

She didn't seem entirely clued up on it and so I didn't query why I only deducted personal pension contributions off. I had been told (I think on here, but now can't find my original thread) that I couldn't deduct workplace pension contributions, but I can't remember why. Something about the tax relief already been calculated?

But I have a gross amount that I then pay into two different pensions (one work and one personal). If I am able to deduct the personal, why can't I also deduct the workplace one which since April and it becoming 5% is not as insignificant as it once was? I get tax relief on the personal one too, so not sure why that would the answer.

Thanks for anyone who can help.

Icequeen99

It depends on how the workplace contributions are made.

If they are deducted before tax is calculated, then the taxable pay figure on your P60 (which is what tax credits use for calculating and checking awards) will already have taken the contributions into account and so you can't deduct them again.

IQ

pollyanna24

Ah, that would explain what I was told before then. Thank you very much.

How would I find this out then?

I just know that the amount I have on my spreadsheets as the gross amount (i.e. before tax and any other deductions are made) and that is the amount that HMRC had on record.

xylophone

Your workplace pension will use either "Net Pay" or "Relief at Source".

See https://www.litrg.org.uk/latest-news/news/181214-do-you-understand-how-tax-relief-your-pension-contributions-works

Which is it?

Dazed_and_confused

If it's a "net pay" scheme it should show up on your payslip.

Your "salary" might be say £24,000 (£2,000 per month)

Your pension contribution might be 5%, so £1,200 (£100 per month)

Your payslip should have a taxable pay value. Monthly this would be £1,900 (£2,000 less £100 pension). And your P60 would show your (taxable) pay as £22,800 (£1,900 x 12). Not £24,000.

So you cannot deduct these pension contributions from your tax credit income.

pollyanna24

Thank you for your help.

I imagine it is the "net pay" one as it is a standard workplace pension (Nest) and it does appear on my wage slip, but I will look into it and the link that you provided as it all seems interesting reading as I always wondered why the amount I assumed would be taken didn't tally with what was actually taken, i.e. 5% of that particular's months wages as I earn different amounts each month.

xylophone

I imagine it is the "net pay" one as it is a standard workplace pension (Nest)

See https://www.nestpensions.org.uk/schemeweb/helpcentre/contributions/calculating-contributions/calculate-tax-relief-with-earnings-basis.html

The tax relief method we use is relief at source (RAS), which means that we claim tax relief back from HM Revenue Customs (HMRC) on behalf of an eligible worker after contributions are paid to us. NEST calculates tax relief after tax and National Insurance.

https://www.nestpensions.org.uk/schemeweb/memberhelpcentre/contributions/claim-tax-relief.html

Tax relief contributions to your NEST pension pot are made by the government. We collect this tax relief on your behalf every time you or your employer make a contribution to your retirement pot.

You can see your tax relief contributions by logging in to your secure NEST online account

xylophone

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

Above refers to "occupational pensions" which usually do use "net pay".

However, not all workplace pensions use the "net pay" system and it seems that NEST is one that doesn't.

The People's Pension offers employers the choice

https://thepeoplespension.co.uk/jargonbuster/relief-at-source/

NOW Pension uses "net pay".

https://www.nowpensions.com/help-centre/faqs/general-information/whats-the-difference-between-net-pay-and-relief-at-source

pollyanna24

Thank you so much for your help, xylophone. So it would appear I should have deducted my work pension also.

Can't do it for 2018/19, but definitely good to know for the current year.

Icequeen99

pollyanna24 wrote: »

Thank you so much for your help, xylophone. So it would appear I should have deducted my work pension also.

Can't do it for 2018/19, but definitely good to know for the current year.

You can probably submit an appeal against the 18/19 award. Depends on the date of the final decision notice.

IQ