SIPP - Understanding Gross & Net

Rumblazer

Hi I'm new here and hoping someone could kindly help...

I'm wanting to contribute the maximum amount that I can in my SIPP (after having contributed to my workplace DC pension) for 2022/23, in order to reduce my tax liability, but I am confused by the gross and net amounts when trying to calculate this figure. 

To try to keep an example simple:-

Maximum allowance: £40,000 (to include employer contributions and tax relief)
Taxable Income:  £85,000 (mixture of gross PAYE salary and other income which I declare via a tax return)
Personal Allowance: £50,270
Difference to reduce tax liability: £34,730

Current workplace contribution (me): £145.94
Current workplace contribution (employer): £104.24
Current workplace contribuition (tax relief): £36.49
Total: £286.67 m / £3,440.04 y

Questions: 

1)  Is the amount of £34,730 BEFORE tax relief and employer contributions or to include it? 
2)  Is it as simple as just deducting £3,440.04 from £40,000 = £36,559.96?  If so, does this £36,559.96 include tax relief, so I would need to work backwards?
3)  What is the calculation that I should use to work out my contributions? 

I did have an accountant to do this for me but he messed up and gave me the wrong figures last year, meaning I paid more tax than I should have, so I am aiming to do this (and my tax return) myself this year.

lisyloo

1) it’s gross I.e. the total including tax relief
2) yes it includes tax relief at BASIC rate (not higher).  So you can put in that figure multiplied by 0.8% as the rest will be added in tax relief. High rate tax relief will come back via your self assessment and go into your pocket (not into your pension).

3) (40000 - 3440.04) * 0.8

Dazed_and_C0nfused

What lever you want to contribute you pay 80%.

The pension company adds 25% of your contribution in tax relief to make the gross contribution.

For example if you want to pay £20,000 gross you would pay £16,000 + £4,000 basic rate tax relief= £20,000 gross

£20,000 x 20% = £4,000

lisyloo

Does your employer pay by salary sacrifice?
if so there is an additional saving in employees NI (and if they are really generous employers Ni).
if this is the case then I’d ask if you can increase DC contributions (even if not matched).

Albermarle

lisyloo said:

Does your employer pay by salary sacrifice?
if so there is an additional saving in employees NI (and if they are really generous employers Ni).
if this is the case then I’d ask if you can increase DC contributions (even if not matched).

OP - Even if your employer does not operate a salary sacrifice scheme, what is the logic behind opening a separate SIPP, rather than just putting more in your workplace pension ?
There can be good reasons to do this, but also we see often on this forum an assumption that workplace pensions are not good, when in fact most of them are fine and some very cheap. 

Somebody

Your max gross contributions is not restricted to £40k this year if you carrying forward previous 3 years' unused allowances; up to your (high) salary/earned income.

Rumblazer

Many thanks all