Do I still have to pay tax?

mancmum

I have a low income (but savings so not destitute).  In 2021 I earned just over the personal allowance ...around 12K.  I took the opportunity to pay money from savings into personal pension.  So paid 8K net 10K gross into pension.  Got the forms not quite right so contribution left my account in 2020 to 21 but was credited on 6th April.  During 21-22 I will only earn about 5K so pension payment will draw on allowance from 20-21.  Listen to taxman income calculator says no tax is due.  HMRC say I owe  about 400.00.  Given that it is very difficult for me to find work at 63 I don't want to pay more tax than I should.  who is right Listen to taxman or HMRC

Dazed_and_C0nfused

Bit confused, are you asking about pension tax relief or how much income tax you will pay?

p00hsticks

mancmum said:

In 2021 I earned just over the personal allowance ...around 12K. 

The standard tax allowance for v20-21 was £12,500 (tax code 1250L) - was your tax code different for some reason ?

Paying into a personal pension from savings won't decrease any income tax due from employment, but you will potentially get tax relief added to your contribution.

[Deleted User]

Dazed_and_C0nfused said:

Bit confused, are you asking about pension tax relief or how much income tax you will pay?

I think that he is stating that he just earned over the personal allowance in 2020/21 and had hoped to avoid tax by paying into his pension in that year. The pension contribution, however, was not credited until 2021/22. 

As we know, the contribution would not have affected his liability to tax in any case.

noh

The OP has over contributed to their pension in 2021/22
They state they contribute £8k net £10k gross on 6 April 2021 but will earn around £5k
Relief at source is only available on a max of the current years earnings.

sheramber

 During 21-22 I will only earn about 5K so pension payment will draw on allowance from 20-21. 
 
What do you mean by that?

What year is the £400 tax due for?

mancmum

Thank you.  HMRC say the tax was underpaid in 2020-21. My tax code was a little over the standard allowance as I qualifed for a working from home allowance.  I had 3 employers for short term contracts hence underpayment and paid tax through PAYE system..  I believe I am still able to contribute 8K to my pension because I did not make other payment into my pension in 2020-21 so earnings for that year can be carried forward and in any case the amount of money left my account prior to the end of the tax year..  I did get tax relief added to my pension.  Looks like your understanding agrees with HMRC and there is a glitch in the Listen to taxman website.  Thank you for your time.  It has saved me having to spend hours waiting to talk to a human at HMRC. 

Dazed_and_C0nfused

Unless you're going to earn more than £40,000 in the current tax year (or are contributing to a defined benefit pension) what happened in previous tax years is irrelevant for pension contribution purposes.

For tax relief purposes you won't be able to contribute more than your earnings in the current tax year i.e. if your pensionable earnings are £7,500 then you can pay £6,000 and basic rate tax relief of £1,500 will be added to make a gross contribution of £7,500.

Unless you are Scottish resident for tax purposes or a higher rate payer relief at source pension contributions won't reduce the tax you pay.  But you do get the basic rate tax relief added to your pension fund as in the example above.

Secret2ndAccount

The personal allowance for most people is 12570. If the taxman says you owe 400, he is saying that you earned about 14570.

By way of explanation of tax relief, let's take an example of what DIDN'T happen. Suppose you had paid, on April 1st, 8k into your pension, grossed up to 10k by the taxman. You have received 2k in tax relief. You still have to pay the 400 you owe - you don't get that back, and it's not canceled out. Actually, it's a good deal, because you've only paid 400 in tax, and you've received 2000 in tax relief - into the pension.

What actually happened was you paid in the 8k in 2022 - After April 5th - so it falls into the new tax year. That's unfortunate. You can not pay in more than you earn in 22/23. There is no carry forward. So if you earn 5k this year, the most you can put into a pension is 4k, grossed up to 5k, getting 1k in tax relief, even though you pay no tax.

You will need to contact your pension provider and ask for a refund of your contribution, or at least tell them that you won't be eligible for tax relief.