MoneySavingExpert Chair, Martin Lewis · Editor, Marcus Herbert

# Is this a scam?

Important update! We have recently reviewed and updated our Forum Rules and FAQs. Please take the time to familiarise yourself with the latest version.

# Is this a scam?

edited 30 November -1 at 12:00AM
5 replies 982 views
Forumite
3 posts
edited 30 November -1 at 12:00AM
Am I missing something? As far as I can tell, the tax relief I get is reduced substantially by the tax I have to pay on my contribution in PAYE.

PAYE
Employee Contribution 79.52
Tax on contribution 20% (14.00)

PENSION
Employee Contribution 79.52
Tax Relief 20% 19.58

Result only 7% 85.10

What have I missed?

Lafrowda

## Replies

• Forumite
7.5K posts
✭✭✭✭
Simpler example:
If you contribute £80 out of net pay (having had 20%/£20 deducted for income tax) then you receive relief of 25% of that £80 (i.e. £20) to give you that tax relief.

===

You've contributed £79.52. 25% of that is (almost) the £19.58 figure (i.e. you don't use 20% on that net figure to get the gross.) Incidentally, are you sure that figure isn't £19.88?

It's not clear where those 7% or 85.10 figures are coming from.
Conjugating the verb 'to be":
-o I am humble -o You are attention seeking -o She is Nadine Dorries
• Forumite
3 posts
Thank you for your reply Paul - Yes, my numbers are sketchy, but I thought for every £1 contributed the government paid-in .20 pence i.e. 20% ? In your simple example
PAYE 20% of £80 is £16
RELIEF 25% of 80 is £20 (A difference of £4)
£4 is 5% of £80
Not 20%
• Forumite
1.1K posts
✭✭✭
This is how the numbers work:

Pay = £100 gross
Tax deducted = £20
Net pay = £80

Net Pension contribution = £80
Tax relief =£20
Total pension contribution =£100

Yes, you get 20% tax relief on your pension contributions, but this refers to the 20% tax that was deducted from your pay.

You are correct though, in that you do actually receive a 25% addition to your net pension contribution.
• Forumite
3 posts
But isn't it obvious that this tax relief (our incentive so to speak) is reduced by the tax we have to pay on our contributions in our pay packets?
• Forumite
7.5K posts
✭✭✭✭
lafrowda wrote: »
Thank you for your reply Paul - Yes, my numbers are sketchy, but I thought for every £1 contributed the government paid-in .20 pence i.e. 20% ? In your simple example

No - you've paid tax of 20% to get to that £1, so you need 25% of that £1 to bring you back to the original amount.

Gross £1.25. Tax of 20% is 25p, dropping it to £1.

Put £1 in your pension, government refunds 25% of that (25p) bringing it back to £1.25.
PAYE 20% of £80 is £16
RELIEF 25% of 80 is £20 (A difference of £4)

You're treating that £80 as gross in the first line and net in the second:

- Gross of £80 gets taxed 20%(£16) to bring it to £64. 25% of £64 is £16.
- Net of £80 was £100 which was taxed 20%(£20) to bring it to £80. 25% relief of £80 is £20.

There's no loss going on here - you're simply confusing net pay which gets 25% relief with gross pay which gets taxed at 20%.
Conjugating the verb 'to be":
-o I am humble -o You are attention seeking -o She is Nadine Dorries