Am I paying too much tax?? UPDATE & QUERY

Bear777

Hi everyone a newbie here so please go easy on me!!

Basically a long story short but I have had previous issues with mistakes made by the company that administers my employers payroll that as a result of incorrect taxable benefits being attributed to me I was paying too much tax.  I resolved that matter a number of years ago, however, after a mistake a number of months ago where they managed to not deduct the correct amount from my wage for my pension contribution my take home pay that month made me question what was actually going on.  

I used The Salary Calculator, an online tool to work out what my take home pay should be and the results it is producing are very different to what I am actually being paid currently and over the past number of years.  I am not sure if this is down to a bit of chopping and changing of my pension contributions & childcare vouchers as a result of furlough, and subsequently a desire to put more into my pension has meant that my salary and my deductions have not been consistent.  I am wondering if this is the root cause of the problem.

Below I have recorded the basic facts for the financial year 2021/22:

Gross Salary -                                    £62775 (per annum)
Childcare Vouchers (pre 06/03/11) -  £2916 (sacrifice the max £243 per annum)
Pension Contributions -                     £12,297 (per annum - £1100 comes out of my wage and it is grossed up to £1375 when it hits my pension provider)
Taxable Benefits -                              £6,183 (company car and health insurance)

So below are what I actually received/paid out that year according to my end of year payroll:

Net Pay -      £29,375
NI -               £5,076
PAYE Tax -   £13,110

According to The Salary Calculator below is what I should have received:

Net Pay -     £33,556
NI -              £5,076
PAYE Tax -  £8,930

So it is telling me I have overpaid tax by £4,180.  Having looked at 2020/21 the story is similar but not as dramatic - the Salary Calculator website claims that my take home pay has been underpaid by £1279.  I had sought some professional help recently but the accountant I spoke to clearly isn't very effective and I can't get a response from him.  The small bit that I did see from my HMRC Personal Tax account when he started to look into it claimed that my current tax code (563L - 2nd August 2022) was based on the following:

Additions:

Personal Allowance - £12,570
Personal Pension - £1,610
Gift Aid Payments - £32

Total Additions - £1,642

Deductions:

Underpayment from previous year (You underpaid £958 in a previous tax year) - £2,396
Medical Ins - £727
Company Car - £5,456

Total Deductions - £8,579

Your Total Tax Free Amount - £5,633

So I think therein lies the problem - the Personal Pension value is basically being recorded at 12% of what I am actually paying in.  I am pretty confident that the underpayment is also wrong as my figures for the previous year are as per above. 

Can someone please tell me if my thinking is correct and there is a problem or am I totally missing something here?

Thanks for having the patience to read this and I appreciate any comments.

Dazed_and_C0nfused

First thing is salary calculators are only as good as that data you enter and people often don't understand how they are built, particularly around pension contributions, so the results are often wrong/misleading.

You will also find it much simpler to look at one tax year at a time.  Once that year is resolved move onto the next year.

Also, National Insurance is calculated on an individual pay day basis so highly unlikely to be wrong but you would have to check each individual payslip to be certain.

Your salary isn't usually relevant for tax purposes, it's your taxable pay (P60 pay amount) that matters.

Can you confirm your 2021:22 P60 pay amount and the tax deducted?

Did the taxable pay on your P60 include payrolled company benefits or were they dealt with via your tax code?

If via your tax code was £6,183 the total taxable benefit declared on your 2021:22 P11D?

Was £12,297 the total gross amount of your personal "relief at source" pension contributions paid in 2021:22?

You have misunderstood the pension tax relief part of your tax code.  That is purely to allow an estimated amount of higher rate tax relief, it's not the amount of your gross contribution.

When did you last update HMRC with details of your relief at source pension payments?

Finally not sure using an accountant is a good use of your money.  This is a personal tax issue not an accounting issue.

Bear777

Thanks for your reply. So to answer a few of your questions please see below:

P60 Figs

Pay Amount = 59,859 (so the figure I quoted above less the £2916 I sacrifice for Childcare Vouchers)
Tax               = 13,109

There is no specific reference of taxable benefits on the P60 so I assume that the taxable benefits were dealt with via my tax code which was identified as 612LM1 (Final Tax Code)

Yes the £6,183 was declared on my P11D

The £12,297 pension contribution that was actual amount taken from my salary and declared on my wage slips, the amount that shows in my pension plan was £15,371.25 as it was grossed up by 25%.  I hope this makes sense.  Is that relief at source?

In regards to my lack of understanding of the pension tax relief part of my code - you may well be correct.  However, on the details above I was merely quoting exactly what was showing on my Personal Tax Account on the HMRC website where is states "Personal Pension Payments = £1610."  All the other figures on the page are shown as actual annual figs and are either gross annual deductions or additions.  So for example in the deductions below it declares the company car amount and the private health insurance based on the accurate annual figures.

In regards to updating the HMRC in regards to my pension payments.  I have never updated them....gulp!  They say never make an assumption, but I assumed that the info the payroll company provided did that automatically....oops.

An accountant probably isn't a good use of money, but didn't know where to start and I am far from an expert when it comes to these things.  I thought that was a reasonable place to start if it either made it clear that the figures are in fact correct or even better if they identified there is an issue.   

Dazed_and_C0nfused

Will come back about the actual tax position but I suspect your main issue is not keeping HMRC updated with details of your pension contributions. 

This isn't always necessary but it is if you use the relief at source method and pay tax above the basic rate.

The £12,297 pension contribution that was actual amount taken from my salary and declared on my wage slips, the amount that shows in my pension plan was £15,371.25 as it was grossed up by 25%. I hope this makes sense. Is that relief at source?

Yes it's relief at source.   You get 20% tax relief which equates to 25% of your payment being added (£15371.25 gross x 20% = £3074.25 tax relief)

£15,371.25 less £3074.25 = £12,297.

An accountant probably isn't a good use of money, but didn't know where to start and I am far from an expert when it comes to these things.  I thought that was a reasonable place to start if it either made it clear that the figures are in fact correct or even better if they identified there is an issue.   

To be honest this type of personal tax issue can usually be resolved on here 🙂

Dazed_and_C0nfused

So your taxable income for 2021:22 mentioned on this thread is £66,042.

After deducting the Personal Allowance this leaves £53,472 to pay tax on.

The normal basic rate band for 2021:22 is £37,700 but your relief at source pension contributions increases that to £53,071 so you will pay tax as follows,

£53,071 x 20% = £10614.20
£401 x 40% = £160.40

Total tax for the year = £10774.60

Tax deducted at source = £13,109

Tax overpaid (ignoring any underpayments from a prior year) = £2,334.40

This ignores Gift Aid (could mean a larger refund) and any interest or dividend income you could have (could reduce the tax overpaid).

Were you a higher rate payer in 2020:21 as well?

Bear777

Dazed_and_C0nfused said:

So your taxable income for 2021:22 mentioned on this thread is £66,042.

After deducting the Personal Allowance this leaves £53,472 to pay tax on.

The normal basic rate band for 2021:22 is £37,700 but your relief at source pension contributions increases that to £53,071 so you will pay tax as follows,

£53,071 x 20% = £10614.20
£401 x 40% = £160.40

Total tax for the year = £10774.60

Tax deducted at source = £13,109

Tax overpaid (ignoring any underpayments from a prior year) = £2,334.40

This ignores Gift Aid (could mean a larger refund) and any interest or dividend income you could have (could reduce the tax overpaid).

Were you a higher rate payer in 2020:21 as well?

Yes I’ve been a higher rate tax payer for quite a period of time, and believe this issue dates as far back as 2019 when I changed the amount I was contributing into my pension. Previous to that I had an elongated period of significantly less but steady contributions. 

Dazed_and_C0nfused

So at the moment you can only look back to 2018:19 tax year, any further back you are out of time to claim for anything.  But that doesn't seem to be a problem in your case.

Have you received P800 or PA302 tax calculations from HMRC for 2018:19 or any later tax year(s)?

You are probably best off getting together details of your gross pension contributions for each tax year from 2018:19 onwards as HMRC clearly don't seem to be aware of the amounts you have been paying in recent years so as a higher rate payer you haven't been getting all the tax relief you are due.

You could ask for each tax year to be reviewed and if you owe less tax (or are due a refund overall) then the deduction in your current tax code for tax underpaid will be reduced/removed.  

You should also provide an estimate of what you expect to pay in relief at source pension contributions in the current tax year so this can be factored into this year's tax code as well.  Make sure you tell HMRC the gross amount (and that it is the gross figure, not net).

Bear777

Dazed_and_C0nfused said:

So at the moment you can only look back to 2018:19 tax year, any further back you are out of time to claim for anything.  But that doesn't seem to be a problem in your case.

Have you received P800 or PA302 tax calculations from HMRC for 2018:19 or any later tax year(s)?

You are probably best off getting together details of your gross pension contributions for each tax year from 2018:19 onwards as HMRC clearly don't seem to be aware of the amounts you have been paying in recent years so as a higher rate payer you haven't been getting all the tax relief you are due.

You could ask for each tax year to be reviewed and if you owe less tax (or are due a refund overall) then the deduction in your current tax code for tax underpaid will be reduced/removed.  

You should also provide an estimate of what you expect to pay in relief at source pension contributions in the current tax year so this can be factored into this year's tax code as well.  Make sure you tell HMRC the gross amount (and that it is the gross figure, not net).

No I haven’t even heard of let alone seen or requested a P800 or PA302….

in terms of the gross figure, so for example I contribute £1100 a month or £13200 per annum which is grossed up to £1375 per month or £16500 per annum. So is it the £16500 figure I quote or £13200? 

Thanks for all your advice, it is much appreciated.

PS Am I best phoning them or completing this online? 

Bear777

Bear777 said:

Dazed_and_C0nfused said:

So at the moment you can only look back to 2018:19 tax year, any further back you are out of time to claim for anything.  But that doesn't seem to be a problem in your case.

Have you received P800 or PA302 tax calculations from HMRC for 2018:19 or any later tax year(s)?

You are probably best off getting together details of your gross pension contributions for each tax year from 2018:19 onwards as HMRC clearly don't seem to be aware of the amounts you have been paying in recent years so as a higher rate payer you haven't been getting all the tax relief you are due.

You could ask for each tax year to be reviewed and if you owe less tax (or are due a refund overall) then the deduction in your current tax code for tax underpaid will be reduced/removed.  

You should also provide an estimate of what you expect to pay in relief at source pension contributions in the current tax year so this can be factored into this year's tax code as well.  Make sure you tell HMRC the gross amount (and that it is the gross figure, not net).

No I haven’t even heard of let alone seen or requested a P800 or PA302….

in terms of the gross figure, so for example I contribute £1100 a month or £13200 per annum which is grossed up to £1375 per month or £16500 per annum. So is it the £16500 figure I quote or £13200? 

Thanks for all your advice, it is much appreciated.

PS Am I best phoning them or completing this online? 

Sorry Dazed ignore the big about the gross figure, I’ve worked your figures back over the past 5 years and understand your calls better now. 

I’ve worked it back that my tax was fine bar about being £25 too much in 2018/19 but from then on there are errors every year and it adds up to a tidy sum of over £5.1k owed to me…a sum not to be sniffed at! 

Thanks for the help and would still appreciate how best to contact them and get this info to them. 

Dazed_and_C0nfused

Given the amounts and several years being involved I would set it out in a letter detailing the pension contributions paid each tax year.

Tell them the gross amount including the basic rate tax relief and say that it's the gross amount to avoid any potential for confusion.

You will also need to provide the Gift Aid details for each tax year (these also increase your basic rate tax band so might reduce the tax due each year).

And anything else relevant to your tax liability like interest received (but not from ISA's).  Again the information needs to be for each tax year.

Bear777

Dazed_and_C0nfused said:

Given the amounts and several years being involved I would set it out in a letter detailing the pension contributions paid each tax year.

Tell them the gross amount including the basic rate tax relief and say that it's the gross amount to avoid any potential for confusion.

You will also need to provide the Gift Aid details for each tax year (these also increase your basic rate tax band so might reduce the tax due each year).

And anything else relevant to your tax liability like interest received (but not from ISA's).  Again the information needs to be for each tax year.

So just to update. I sent HMRC a letter and included the following:

1. A copy of my P60’s dating back of 05/03/18
2. My last 5 years P11D’s
3. A copy of my monthly pension contributions as provided by my pension provider from the start of the period when I joined the scheme. 

4. A spreadsheet I created showing a breakdown of all the figures (net annual income for tax, taxable benefits, total taxable income, gross pension contributions, gift aid payments, annual personal allowance) for the past 5 years and indicating the income tax I paid versus what I believe I should have paid and the resulting refund that I believe I am due. 

So far according to HMRC’s website I should have received a response by 13th Oct and yet having been advised on the phone two weeks ago it would be resolved by 7th Nov I have been further advised that it hasn’t been looked at and they have 14 weeks to respond! No where online can I see that as being an agreed response period. They are doing nothing about it when I phone and are merely saying it hasn’t been looked at and I just have to wait, is that the case? 

I have yet to make any changes to my personal tax statement on the HMRC website as I didn’t want to confuse matters. But I believe this matter is costing me about £300 a month in additional income tax so need to do something about it. 

Can I ask a couple of questions?  

So looking at my personal tax statement it is showing that when I review my PAYE income tax summary for 22/23 that under the section your tax free amount that my personal pension payment is £1610 for the year 2022/23. Under the section for Your Detailed PAYE Income Tax estimate there is a deduction from the income tax I pay of -£644 as according to their records I have made personal pension payments of £3220 that’s double the £1610 amount so I assume that’s looking at full year whereas the other section is looking at period to date of 6 months) . So this year to date I have made gross personal pension contributions (including the basic rate tax relief) of £9647.44. So Q’s as per below:

1. Why is the figure showing at £1610 in the tax free amount?

2. Given in the Detailed PAYE income tax estimate their figure of £3220 (which as per above I believe to be a full 12 month figure)  is well short of the actual figure (£9647.44). It appears to allow me to update my pension figure in the section that refers to the tax free amount that has it recorded as £1610. So if I update the information there for this year do I update it to the gross figure including the basic rate tax relief?

3.Is this figure correct as of today as I would have thought it would be reflective of 7 months pay (58%) of the annual figure but based on the comments above comparing the detailed breakdown to the tax free section amount it’s looking like that’s only taking into consideration 6 months or 50% of the contributions. 

Help please lol!!