Help - Pension Annual Allowance & Tax Relief - Complicated by Substantial Salary Sacrifice Inputs

[Deleted User]

Hi all

Apologies if it ppears that I am repeating an oft asked question - I did search but cannot find an answer to my specific issue.

EXAMPLE

ANNUAL 2022/23 Tax Year
£42,000 nominal salary (35 hours x 52 weeks)

Inputs into DC Pension
£3,360 (8% salary sacrifice) Employee Contribution into Employer DC Pension
£21,252 (Employee SS AVC) - this takes gross salary down to a few hundred pounds over Nat Min Wage
£5,000-£7,000 Annual April bonus (SS also)
£5,040 (12% SS Employer contributions)
c£35-£37k  TOTAL SS contributions 

End of Tax Year Inputs into SIPP
£14,000 Paid out of NET (corrected from Gross) Earnings into SIPP
£3,500 Tax Relief claimed 

2022/23 POTENTIAL TOTAL Pension Contributions = £52,500 - £54,500
How to calculate last (3) years to see if any unused allowance that could cover the excess 2022/23 contributions.

BUT here is my question -   
MoneyHelper website cites:
 
i) If you exceed the annual allowance in a particular tax year, you won’t get tax relief on any contributions you paid that exceed the limit in that tax year, and you will be faced with an annual allowance charge. 
I dont believe this is relevant to me because Im only claiming tax relief on my gross/taxable (post ss) earnings

So, once I hit the annual allowance and run out of unused carry forward allowance, I should reduce my End Of Year contribution rather than cut back my SS contributions because (correct me if Im wrong) that by SSing I am saving NI***............wheras making pension contriution that attrats tax relief only from my poss SS earnings means Ive paid the NI.

Hope that makes sense 

 ***corrected from "saving tax and ni"

Marcon

[Deleted User] said:

So, once I hit the annual allowance and run out of unused allowance, I should reduce my End Of Year contribution rather than cut back my SS contriutions because (correct me if Im wrong) that by SSing I am saving tax and NI.............wheras making pension contriution that attrats tax relief only from my poss SS earnings means Ive paid the NI.

 

To clarify a point: you are not saving tax and NI by using salary sacrifice; the tax relief will be the same whether you make a personal contribution or one via SS. With SS, the saving only comes where someone has a saving on NI.

[Deleted User]

Marcon said:

[Deleted User] said:

So, once I hit the annual allowance and run out of unused allowance, I should reduce my End Of Year contribution rather than cut back my SS contriutions because (correct me if Im wrong) that by SSing I am saving tax and NI.............wheras making pension contriution that attrats tax relief only from my poss SS earnings means Ive paid the NI.

 

To clarify a point: you are not saving tax and NI by using salary sacrifice; the tax relief will be the same whether you make a personal contribution or one via SS. With SS, the saving only comes where someone has a saving on NI.

Hi Marcon

Thanks - Yes, I summarised poorly, in that SS or relief at source produces same net effect ie tax saving or tax top up AND it is the NI that SS saves.

Please may I ask if you agree with my assumption that if I need to reduce the inputs into my pension/s if I run out of allowance and brought forward............that it is the EOY non SS top up that I should reduce first?

Thanks, Ells

Dazed_and_C0nfused

I'm not convinced that the statement you've quoted is correct.

If you exceed the annual allowance in a particular tax year, you won’t get tax relief on any contributions you paid that exceed the limit in that tax year, and you will be faced with an annual allowance charge. 

You might find this more useful.

https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/annual-allowance

Secret2ndAccount

The amount by which you exceed the AA (after allowing for carry forward) is added to your taxable income and you pay the extra income tax at whatever rate results. So, if you exceed as a result of SIPP contributions that is pointless, and you should just contribute less to the SIPP.
I believe we had a thread about this a while back. Theoretically it could still be worth exceeding the AA if you could do it by SS as you would still get the NI benefit. Doesn't appear you can do that, as you don't earn enough.