Tax Credits - Income declaration & Pension Contributions

SomeMadeUpName

Hi, technical question here:
My wife and I are on WFTC and CTC. We are both earning, but neither of us pay income tax as the wages are too low. We are middle aged and have a decent asset base so will not qualify for UC once TC's finally finish. 
This year for the first time in a long long time we made contributions to a personal pension. Contributions were low enough (below £2880 each) that we should get tax added back on top even though we don't actually pay tax (something I only just realised was possible upto the £2880/3600 threshold).
So the question is:
What do we declare as pension contrib on our TC renewal?
For example say  an individual's earnings were £10,000, personal pension contrib was £2880 which then gets boosted to £3600 in the fund by 'tax' rebate.
Do you declare £10k income and £2880 contrib, or, £10k income £3600 contrib?
Reading the instructions on Gov.uk it says you should add in the 'tax' back on any contribs and declare the grossed up amount (so in the example the £3600), and I get that if the income was £30k, you paid tax, and then claimed some back on the pension contrib. Is that really the same though if you never paid the tax in the first place, it just seems unfair. It could well be correct though, as a 'perk' to encourage low earners to contrib to pensions (it is they/we after all who need the greatest encouragement not to sleep walk into an unaffordable retirement). It would be not dissimilar in it's motivation to Help to Save if it were true. 
Anyone know for sure, or do I really need to call TC and ask to be 100%?

olgadapolga

SomeMadeUpName said:

Anyone know for sure, or do I really need to call TC and ask to be 100%?

I'm not convinced that the helpline would actually know the answer. I contacted them about this very issue and was initially told to use £2880 but then they changed their minds and said to use £3600. 

The info that comes out with the renewal states to use the gross figure  so that's what I do now and claim £3600.

Dazed_and_C0nfused

This year for the first time in a long long time we made contributions to a personal pension. Contributions were low enough (below £2880 each) that we should get tax added back on top even though we don't actually pay tax (something I only just realised was possible upto the £2880/3600 threshold).

You have invented a rule that doesn't exist for relief at source pension contributions.

The £2,880/£3,600 limit is for non earners or people with pensionable earnings of less than £3,600.

Low earners on say taxable wage of £7,500 could contribute £6,000 and get basic rate tax relief of £1,500 added to the pension fund even though they don't pay any income tax.

You deduct the gross pension contribution, this is from last year's tax credit renewal notes.

You can deduct the gross amount of any payments you have made in Gift Aid donations, personal pension or retirement annuity contributions.

SomeMadeUpName

olgadapolga said:

SomeMadeUpName said:

Anyone know for sure, or do I really need to call TC and ask to be 100%?

I'm not convinced that the helpline would actually know the answer. I contacted them about this very issue and was initially told to use £2880 but then they changed their minds and said to use £3600. 

The info that comes out with the renewal states to use the gross figure  so that's what I do now and claim £3600.

Hi, thanks for your experience. I know what you mean, I called a few years ago about a complicated redundancy payment query and had to go up several layers of call handlers over several days until I spoke to a 'technical agent' (or something like that) before getting a definitive answer.

SomeMadeUpName

Dazed_and_C0nfused said:

This year for the first time in a long long time we made contributions to a personal pension. Contributions were low enough (below £2880 each) that we should get tax added back on top even though we don't actually pay tax (something I only just realised was possible upto the £2880/3600 threshold).

You have invented a rule that doesn't exist for relief at source pension contributions.

The £2,880/£3,600 limit is for non earners or people with pensionable earnings of less than £3,600.

Low earners on say taxable wage of £7,500 could contribute £6,000 and get basic rate tax relief of £1,500 added to the pension fund even though they don't pay any income tax.

You deduct the gross pension contribution, this is from last year's tax credit renewal notes.

You can deduct the gross amount of any payments you have made in Gift Aid donations, personal pension or retirement annuity contributions.

Hello again, thanks for that, it actually answers another question I was going to pose over on the pensions board.
In this instance though (this year) we do fall into sub £3600 earner bracket hence the £2880 (though clearly my example scenario indicated the opposite). 

So when we are able to bump my wife's salary up to say £7,500, which I hope to do soon(ish) not least in order to secure her the last couple of years of NI she needs to get full new SP, then she can definitely then pay £6,000 into pension? That's great to know, it chimes in well with needing those extra years NI and her getting a few £k in property investment income each year.

Dazed_and_C0nfused

If she has pensionable earnings of £7,500 then she can contribute £7,500 gross. 

£6,000 from her and £1,500 basic rate tax relief will be added by the pension company.

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/tax-relief-members-contributions/

SomeMadeUpName

Dazed_and_C0nfused said:

If she has pensionable earnings of £7,500 then she can contribute £7,500 gross. 

£6,000 from her and £1,500 basic rate tax relief will be added by the pension company.

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/tax-relief-members-contributions/

Thanks for that.
I'm going to ask another question now, it's shameless thread drift and not appropriate to the benefits board at all, but seeing as the original question is answered (and it's my thread) I'll go ahead as it's not worthy of it's own thread on the pensions board:
I talked to a mate over the weekend, he's about to be made redundant and retire, his slightly older missus packed in a year or so ago. They have been slamming money into pensions the last few years, decent corporate salaries so probably hitting the £40k limits. He's selling a PPR property and said he wanted to push the funds into his pension. I pointed out to him that with no earned income he was maxed out at £2880 personal contrib into his pension (something he had no idea about after years of corp salaries funding varying degrees of pension contrib, he had no 'need' to know it). His response was 'well how would they know'? I countered that its all linked to your NI number, and they'll know for sure.
So am I right? Don't get me wrong he wasn't expecting tax back, he was just shocked his contrib was limited. 
Anyway I asked him why he would want to put untaxed money into a pension. Better surely into S&S then over time into SSISA at 2x£20k pa?
You know your stuff, so thoughts........................

SomeMadeUpName

Browsing recent stuff on the pensions board this has been said in a thread:

Albermarle said:

You could add more to a SIPP and the provider would just add tax relief automatically , whether you were entitled to it or not .
Problem would be when it became apparent to HMRC what was going on ( maybe some years later) it would presumably be a big mess to unravel it all .

True do you think?
Why would it takes years for HMRC to realise, surely it's an easy check, is it just that no one is checking.
Might it never get checked??
If/when it did what would the consequences be? Repayment of tax for sure, but what about the capital growth enjoyed on the incorrectly claimed tax, and what about fines?
Not something I would risk for sure, but my question is how strong a steer away should I give him?

Asghar

SomeMadeUpName said:

Reading the instructions on Gov.uk it says you should add in the 'tax' back on any contribs and declare the grossed up amount (so in the example the £3600)

That's right, it's always the gross amount you have to declare, which includes the added tax relief.

£10k - £3600 means you would declare your income as £6400. Best to ring them and mention the pension contributions because if you do it online, any renewal or changes will be delayed because the P60 figure they have and the income you are telling them will be different.

SomeMadeUpName

Asghar said:

any renewal or changes will be delayed because the P60 figure they have and the income you are telling them will be different.

Ha, often a problem, as the wages are low enough that no PAYE scheme is needed and ergo no P60's are reported at all.

Dazed_and_C0nfused

SomeMadeUpName said:

Asghar said:

any renewal or changes will be delayed because the P60 figure they have and the income you are telling them will be different.

Ha, often a problem, as the wages are low enough that no PAYE scheme is needed and ergo no P60's are reported at all.

Don't forget that without a PAYE scheme you cannot accrue qualifying NI years from earnings so you will need one for this to work.

So when we are able to bump my wife's salary up to say £7,500, which I hope to do soon(ish) not least in order to secure her the last couple of years of NI she needs to get full new SP,