Help to understand Pension Tax Relief

zagfles

FreshlyCutFlowers said:

Dazed_and_C0nfused said:

Your taxable pay suggests your income, for tax purposes is only £46-47k, not £59k.
What is dropping your salary from £59k to taxable pay/salary of £46-47k?

I don't know..! To be clear, the taxable pay in my table is not from my payslip (It doesnt actually state 'taxxable pay' in the payslip) but I came to that number based on the 1242L taxcode in the payslip.
I just looked into how they work and assumed 1242L = £12420 Tax is free of tax leaving me with £59000 - £12420 = 46580.

Am I being taxed wrong? I've been at this taxcode and salary for a long time..!

You're using confusing terminology, "taxable pay" includes any pay that is covered by your personal allowance, "government contribution" isn't a contribution, it's tax relief.

Your payslip should have "taxable to date", how does that change from one payslip to the next? Post a couple of examples of consecutive payslips with all payments and cumulative totals. If it's a RAS scheme then you have to claim higher rate relief from HMRC.

FreshlyCutFlowers

zagfles said:

You're using confusing terminology, "taxable pay" includes any pay that is covered by your personal allowance, "government contribution" isn't a contribution, it's tax relief.

Your payslip should have "taxable to date", how does that change from one payslip to the next? Post a couple of examples of consecutive payslips with all payments and cumulative totals. If it's a RAS scheme then you have to claim higher rate relief from HMRC.

Apologies- I thought Taxable pay essentially meant Salary that you pay tax on. So in my instance I calculated it as £59000 - £12420 (based on my taxcode 1242L).
Here are two consecutive payslips that hopefully help clear up any questions.

garmeg

FreshlyCutFlowers said:

zagfles said:

You're using confusing terminology, "taxable pay" includes any pay that is covered by your personal allowance, "government contribution" isn't a contribution, it's tax relief.

Your payslip should have "taxable to date", how does that change from one payslip to the next? Post a couple of examples of consecutive payslips with all payments and cumulative totals. If it's a RAS scheme then you have to claim higher rate relief from HMRC.

Apologies- I thought Taxable pay essentially meant Salary that you pay tax on. So in my instance I calculated it as £59000 - £12420 (based on my taxcode 1242L).
Here are two consecutive payslips that hopefully help clear up any questions.

December is month 9 of the tax year but your earnings to date appear to be 10 months' worth because £4,916.67 x 10 = £49,166.70 (total year to date).

Are you actually showing January and December payslips instead of December and November respectively?

FreshlyCutFlowers

I double checked and I am showing the correct payslips but I have not been on this salary for a full year yet, only for 10 months. Before that my salary was significantly lower.

zagfles

garmeg said:

FreshlyCutFlowers said:

zagfles said:

You're using confusing terminology, "taxable pay" includes any pay that is covered by your personal allowance, "government contribution" isn't a contribution, it's tax relief.

Your payslip should have "taxable to date", how does that change from one payslip to the next? Post a couple of examples of consecutive payslips with all payments and cumulative totals. If it's a RAS scheme then you have to claim higher rate relief from HMRC.

Apologies- I thought Taxable pay essentially meant Salary that you pay tax on. So in my instance I calculated it as £59000 - £12420 (based on my taxcode 1242L).
Here are two consecutive payslips that hopefully help clear up any questions.

December is month 9 of the tax year but your earnings to date appear to be 10 months' worth because £4,916.67 x 10 = £49,166.70 (total year to date).

Are you actually showing January and December payslips instead of December and November respectively?

The tax is worked out based on month 8 for Nov and month 9 for Dec, and the pension totals also reflects 8 month's worth in Nov and 9 in Dec, so it would appear OP had an extra month's pay this tax year without pension deduction or a bonus exactly equal to a month's pay?

Anyway, the pension is clearly RAS, so OP you should see the pension scheme reclaiming 20% tax, ie £49.17 a month. You need to claim the additional tax relief from HMRC, that will go to you not the pension.

zagfles

FreshlyCutFlowers said:

I double checked and I am showing the correct payslips but I have not been on this salary for a full year yet, only for 10 months. Before that my salary was significantly lower.

It's the tax year that matters and 10 months would be the whole tax year so far. But as above looks like there was an extra month's pay/bonus this year? Or did you get a backdated pay rise in April that happened to be exactly a month's pay?

Anyway as above, a RAS scheme will only ever claim basic rate tax relief from HMRC. You need to tell HMRC that your employer's scheme is RAS and you want to claim the extra tax relief, you'll need to give them an estimate of your gross contributions (ie the total including the 20% tax relief added, so your net contributions divided by 0.8). They'll adjust your tax code to give you the extra relief.

FreshlyCutFlowers

You guys are of course correct - we reached our sales target for 2020 and all 10 employees got a months bonus.

Thanks for identifying that it is a RAS scheme- please could you also describe how you identified it so I can learn from this? I feel a bit silly for still not understanding.. IS it based on you knowing that I am contributing the 5%?

I was quite confused about the difference between the initial 20% relief and the remaining 20% but I now understand how to connect the dots. Thanks!

Dazed_and_C0nfused

Your gross pay for tax is teh same as your gross pay so that rules out net pay.

zagfles

FreshlyCutFlowers said:

You guys are of course correct - we reached our sales target for 2020 and all 10 employees got a months bonus.

Thanks for identifying that it is a RAS scheme- please could you also describe how you identified it so I can learn from this? I feel a bit silly for still not understanding.. IS it based on you knowing that I am contributing the 5%?

I was quite confused about the difference between the initial 20% relief and the remaining 20% but I now understand how to connect the dots. Thanks!

Don't worry most people don't understand how pension contributions work. Your taxable pay is increasing every month by your gross pay. So you are being charged PAYE tax on your full gross pay with no deduction for your pension contributions. If they were using "net pay", your "gross for tax" would be gross pay minus pension contributions, and you would get full tax relief in your payslip. If they were using salary sacrifice, your gross pay would be pay after the sacrifice.

So you are getting no tax relief in your payslip. Your pension provider will be claiming basic rate relief which you should see on your statements/online pension account. As you pay higher rate tax, you have to claim the additional tax relif from HMRC.

Your current tax code of 1242L means they've deducted about £80 from your tax free amount, if you log onto your tax account you can find out why. Sign up if you haven't already, it's very useful https://www.gov.uk/government/organisations/hm-revenue-customs It might be a benefit from your employer or some other untaxed income.

When you tell them about your pension conts they should increase your tax code.

FreshlyCutFlowers

zagfles said:

Don't worry most people don't understand how pension contributions work. Your taxable pay is increasing every month by your gross pay. So you are being charged PAYE tax on your full gross pay with no deduction for your pension contributions. If they were using "net pay", your "gross for tax" would be gross pay minus pension contributions, and you would get full tax relief in your payslip. If they were using salary sacrifice, your gross pay would be pay after the sacrifice.

So you are getting no tax relief in your payslip. Your pension provider will be claiming basic rate relief which you should see on your statements/online pension account. As you pay higher rate tax, you have to claim the additional tax relif from HMRC.

Your current tax code of 1242L means they've deducted about £80 from your tax free amount, if you log onto your tax account you can find out why. Sign up if you haven't already, it's very useful [..removed link because I'm not allowed to quote it.] It might be a benefit from your employer or some other untaxed income.

When you tell them about your pension conts they should increase your tax code.

Thanks for this. Glad to know about the 'no deduction for pension contribution'. I'm slowly doing a lot of (probably basic) calculations to really ensure I understand how all the numbers come together.

So based on the current 5% contribution I will always end up paying the 4% upfront, while my pension provider claims the last % for me via tax relief. Then if I want to claim the higher tax payer relief as well, I have to do that after the fact? If this is correct, do I get the 1% claimed on a monthly basis or at the end of the tax year?
Will this be exactly the same if I contribute the full 15% that I plan to contribute? I will end up contributing 14%. Pension provider claims 1% tax relief and I have to claim 1% back as higher tax relief as well?

The taxcode: It seems like I'm being deducted £76 for healthcare via the company, I was not aware..! I can see that my next taxcode is going to change again as well, moving me to '1274L'- apparently it should show up from this month (January). Glad to at least know how this works now- I assume the new taxcode is due to claiming WFH tax relief (Thanks for the tip Martin!), otherwise I dont know what else the ~£300 'additional expenses' could be.