Annual allowance limit uncertainty

Albermarle

You can contribute £21K gross , so it is this >>To get 21k into your SIPP you would pay 16,800 into the SIPP and HMRC would add 4,200.

masonic

Albermarle said:

You can contribute £21K gross , so it is this >>To get 21k into your SIPP you would pay 16,800 into the SIPP and HMRC would add 4,200.

Worth noting that the annual allowance includes tax relief added to the SIPP, so this is treated as a £21k contribution for the purposes of determining how much of the allowance has been used. The other £4,200 tax relief claimed through your tax return reduces the cost of your contribution but does not end up in the SIPP.

rundmc-k

Thanks folks those are all very helpful responses. So essentially, if I were to pay an addititional 6,800 into the SIPP now, I will have 21k in it in total, and will have brought myself down to the basic rate tax band, at which point, any further long term investment would be best going into a LISA. The other 4,200 tax relief I presume is paid back into my bank account and there is a section in the self assessment return to claim that?

In addition that 21k in the SIPP will mean that I go over the AA most likely somewhere in the region of 2-10k, which can be covered by my carry forward allowance... which should be fine with HMRC and not require me to "do" anything other than possibly contact the Health Service Pension providers to check in with them about that having happened for peace of mind?

Dazed_and_C0nfused

The other 4,200 tax relief I presume is paid back into my bank account and there is a section in the self assessment return to claim that

There is no fixed extra tax relief.

You include details of the "relief at source" contribution on your Self Assessment return and your basic rate band is increased by the gross contribution.

To check the actual benefit you can complete (but not file) your return without the pension contribution and note the tax due or overpaid.

Then add the pension contribution and check the revised amount due or overpaid.  The difference is the personal tax saving on top of the £4,200 which was added to your pension fund.

Albermarle

The other 4,200 tax relief I presume is paid back into my bank account and there is a section in the self assessment return to claim that?

Be aware that a secondary consequence is that they will then adjust your tax code for next tax year on the assumption you will make the same contribution again. In this case your net pay each month will go up, but there will be no rebate due at the end of the next tax year . If you do not intend to make the same contributions next year ( either less or more ) it would be a good idea to have the tax code changed at some point.

rundmc-k

Albermarle said:

Be aware that a secondary consequence is that they will then adjust your tax code for next tax year on the assumption you will make the same contribution again. In this case your net pay each month will go up, but there will be no rebate due at the end of the next tax year . If you do not intend to make the same contributions next year ( either less or more ) it would be a good idea to have the tax code changed at some point.

As I am self-employed within the NHS my salary varies every year, so my SIPP contributions will most likely be different. Is it a case of contacting HMRC every year to revert your tax code then? Does a change in tax code mean a change in the way my NHS superannuation is calculated? I don't want to accidentally start paying more into that.

Dazed_and_C0nfused

rundmc-k said:

Albermarle said:

Be aware that a secondary consequence is that they will then adjust your tax code for next tax year on the assumption you will make the same contribution again. In this case your net pay each month will go up, but there will be no rebate due at the end of the next tax year . If you do not intend to make the same contributions next year ( either less or more ) it would be a good idea to have the tax code changed at some point.

As I am self-employed within the NHS my salary varies every year, so my SIPP contributions will most likely be different. Is it a case of contacting HMRC every year to revert your tax code then? Does a change in tax code mean a change in the way my NHS superannuation is calculated? I don't want to accidentally start paying more into that.

Do you have any PAYE income?

toothdoctor

rundmc-k said:

Albermarle said:

Be aware that a secondary consequence is that they will then adjust your tax code for next tax year on the assumption you will make the same contribution again. In this case your net pay each month will go up, but there will be no rebate due at the end of the next tax year . If you do not intend to make the same contributions next year ( either less or more ) it would be a good idea to have the tax code changed at some point.

As I am self-employed within the NHS my salary varies every year, so my SIPP contributions will most likely be different. Is it a case of contacting HMRC every year to revert your tax code then? Does a change in tax code mean a change in the way my NHS superannuation is calculated? I don't want to accidentally start paying more into that.

Hi rundmc-k
I'm in exactly the same position. As you don't have a PAYE income you don't have to concern yourself with tax codes. As a self employed person you just report your businesses profits or losses (so your profits/losses vary each year as you don't technically earn a salary as your not employed) on your self assessment tax return. You report your gross SIPP contribution (i.e 21K this is made up of your actual contribution of 16,800 and HMRC addition of 4,200). This increases your basic rate tax band by 21K . So you are paying more tax at 20% rather than 40% so in effect reducing your tax bill. The additional tax relief of 20% for being a higher rate tax payer is reflected in a lower tax payment/payment on account. You don't physically get that money placed in your bank account as cash from HMRC.

rundmc-k

Thanks everyone, that's all very helpful. I know how the SIPP and tax relief on it applies now, and that the AA should be fine taking into account my last 3 unfilled years. I still don't know whether I'm likely to go near LTA in my career and whether that means paying into LISA rather than using SIPP to completely remove higher rate tax make more sense at some stage but I imagine that picture may become clearer as the years go on.

AlanP_2

General question - Why on earth do the NHS let self-employed people join their DB pension scheme?

It's great for you guys that can but just wondering what the logic behind it was.