Tax calculation

Ed-1

If you owe tax from benefits on a P11D should HMRC automatically take into account any higher rate pension tax relief they owe you when calculating the tax due?

I ask as if you don't owe tax you seem to need to claim the higher rate tax relief yourself and you only have 4 years to do this.

Dazed_and_C0nfused

Normally only in respect of "relief at source" pension contributions that you have notified them of.

There is no difference whether you owe tax or are owed tax for any reason, you still need to have advised HMRC of the pension contributions in the first place.

Ed-1

Dazed_and_C0nfused said:

Normally only in respect of "relief at source" pension contributions that you have notified them of.

There is no difference whether you owe tax or are owed tax for any reason, you still need to have advised HMRC of the pension contributions in the first place.

But they know about them as they've paid 20% relief to the pension provider.

Dazed_and_C0nfused

As far as I'm aware that information has never been used as a matter of course by the part of HMRC that deals with individual taxpayers.

A bit like interest until 2016.  HMRC had access to the information as banks had to pay over the tax deducted before George Osborne's changes.

Dazed_and_C0nfused

Is there an error in a calculation you have received?

Ed-1

Dazed_and_C0nfused said:

Is there an error in a calculation you have received?

It's not for me personally but someone I know thought higher rate relief would be applied automatically somewhere along the line.

If the gross contribution is £1,515.12 and the net contribution is £1,212.12 before 20% tax relief has been applied what would the higher rate tax relief be?

Dazed_and_C0nfused

Anywhere from £0.20 to, in extreme circumstances, £628.

Ed-1

Dazed_and_C0nfused said:

Anywhere from £0.20 to, in extreme circumstances, £628.

Assuming the entire contribution qualifies for higher rate relief.

Is it simply 40% of the gross amount?

Dazed_and_C0nfused

No.  It would be 20% of the gross amount as 20% relief was already given by the pension company.

But there isn't a fixed extra 20%, the amount of relief due is given by extending the basic rate band by the gross contribution.  Meaning more tax is paid at 20% and less at 40%.

Ed-1

Dazed_and_C0nfused said:

No.  It would be 20% of the gross amount as 20% relief was already given by the pension company.

But there isn't a fixed extra 20%, the amount of relief due is given by extending the basic rate band by the gross contribution.  Meaning more tax is paid at 20% and less at 40%.

The thing that's confusing me is you pay in net of tax relief. So in effect if you pay in £1,212.12 you get a 25% bonus (20% tax relief) applied automatically. But you're actually entitled to 66.7% bonus (40% tax relief). So does that contribution of £1,212.12 actually become a gross contribution of £2,020.60?

[Deleted User]

No. 

First step - you put £1212 into your pension. This is grossed up to £1515 by HMRC. That is the contribution.

Second step - you may be entitled to tax relief at 40% on the contribution, £1515. You have received 20% relief already (by the grossing up) and can claim the further relief, at 20% of £1515, of £303 from HMRC.

Your contribution (still £1515) has now actually cost you £909.