25% topup?

ChilliBob

Hey guys,
I have made a lump sum payment into my Scottish Widows pension, this has been topped up by 25%. I was expecting 20%
It's a scheme my former employer setup, I paid into it each month via salary sacrifice and they also paid in. I'm now making the maximum payment I can make into it to take into consideration this and earlier tax years -I don't want to go over the top though.
I'd worked out what I could overpay without penalty, but this was based on 20% contribution by the scheme. I looked on the Gov website and it also seemed to suggest 20%.

Any ideas?!

For reference, but I don't think it's relevant at this point, I'm an additional rate tax payer (although I'm unemployed at the moment)

Dazed_and_C0nfused

You are getting your rates mixed up by looking at the net contribution.

You are entitled to 20% basic rate tax relief with a relief at source contribution..  Which is what has been added.

You pay £1,000. 
The pension company adds £250. 
You have a gross contribution of £1,250.

20% of £1,250 is £250

Malthusian

Basic rate tax relief means that to get £100 in your pension you pay £80. The tax relief is 20% of the gross contribution (20 / 100 = 20%). Which is 25% of the net contribution (20 / 80 = 25%).

In a net pay system (with no salary sacrifice NI saving), your employer pays £100 into your pension whereas if you'd taken it as salary you would have received £80. A relief at source system, which is what you have, reverses the process.

ChilliBob

Cheers chaps. I think I just got an F minus Oh dear.

That's a result though, means I can bung in a little bit more, and, I think, claim a bit more additional relief too (don't worry, I'll be getting an accountant to do my tax return for this abnormal and slightly more complex issue!)

LHW99

If you pay 40% tax, can't you claim back some extra from HMRC? They only pay back basic rate, but if you are taxed more, then they have a form you can use.

ChilliBob

I believe so yes, sadly I've never done it, but when I do my tax return I believe I can claim for it, so yeah, I'll be giving that a go cheers!

Dazed_and_C0nfused

ChilliBob said:

I believe so yes, sadly I've never done it, but when I do my tax return I believe I can claim for it, so yeah, I'll be giving that a go cheers!

All you need to do is include the contribution in the relevant box on the return and any additional tax relief due will be automatically taken into account in your Self Assessment calculation.

You don't get a set extra amount, the gross contribution increases how much income is taxed at the basic rate tax, reducing the amount taxed at the higher rate.

ChilliBob

Thanks, that's great. It might be enough to nudge me down from additional rate to higher rate actually. I received some dividends, which when combined with my salary took me into additional rate territory unfortunately . Not sure if I'm able to claim for previous years missed relief... the irony here is about 13-15 years ago I knew you *could* do this, but I was a basic rate tax payer!.. I emailed my then boss (still a good friend) and told him, he managed to claim a few years relief back. Sort of stupid that I forgot and was caught up with other stuff when I was in that zone (like being fixated on paying the right tax on my dividends)