Do i count as a Higher Rate Tax payer?

tunde10

My salary is currently £55,000. I pay £5,500 into the auto enrolment pension scheme to get below the 40% tax rate.

However when i get my monthly payslip, i am always still charged 40% tax on a portion of the income. Then i noticed i get 40% relief added to pension on that same portion that was taxed 40%.

Is this normal? Online calculators shows i shouldn't have paid more than basic rate tax. So i'd end up with more money in pocket but less in pension, which i'd prefer.

Main reason i ask is because this could affect my savings interest tax if the treatment means i am classed as higher rate.

Dazed_and_C0nfused

You need your total taxable income details, not just employment income.

What else do you have?

And can you clarify exactly what method is used for the pension contribution?

Sounds like RAS where the pension company adds basic rate tax relief (25% of your net contribution).

tunde10

No real other income outside of ISA's. I have normal personal allowance so employment income is pretty much my Taxable income.

Savings interest had always been below £1,000 allowance as most in ISA. But i'm considering putting a decent chunk in a 6% fix if i'd count as a basic rate payer.

You are right, after contribution, the pension company adds 25% Tax relief. Then 40% relief on the amount that got Taxed @ 40%. I didnt even know this was a thing and thought i was being underpaid until i noticed the 40% relief in pension.

Dazed_and_C0nfused

tunde10 said:

No real other income outside of ISA's. I have normal personal allowance so employment income is pretty much my Taxable income.

Savings interest had always been below £1,000 allowance as most in ISA. But i'm considering putting a decent chunk in a 6% fix if i'd count as a basic rate payer.

You are right, after contribution, the pension company adds 25% Tax relief. Then 40% relief on the amount that got Taxed @ 40%. I didnt even know this was a thing and thought i was being underpaid until i noticed the 40% relief in pension.

You've misunderstood something somewhere.

You can never get 40% pension tax relief added to your pension fund.

It's either no pension tax relief (net pay or salary sacrifice*) or basic rate relief (relief at source contributions).
*salary sacrifice are actually employer contributions 

Could you clarify what it is you think is happening which means you get more than 20% relief (20% of the gross contribution).

tunde10

I'll break it down.

So on a monthly Payslip
Gross - £4,853.33
Pension Contribution - £366.66
Income Tax - £785.66
N.I Tax - £384.81

In Pension
Employee contribution shows £549.99. Surely this is 40% on top of what i actually added above?
Then there is a separate Tax relief of £137.50 which is the regular 25%.
Plus same amount added by Employer.

Dazed_and_C0nfused

tunde10 said:

I'll break it down.

So on a monthly Payslip
Gross - £4,853.33
Pension Contribution - £366.66
Income Tax - £785.66
N.I Tax - £384.81

In Pension
Employee contribution shows £549.99. Surely this is 40% on top of what i actually added above?
Then there is a separate Tax relief of £137.50 which is the regular 25%.
Plus same amount added by Employer.

Unfortunately a single set of payslip values don't mean anything without the cumulative figures and tax code in use.

But if your contribution is a RAS contribution of £549.99 which gets the expected £137.50 added in basic rate tax relief then what is the £366.66 referring to?

[Deleted User]

tunde10 said:

I'll break it down.

So on a monthly Payslip
Gross - £4,853.33
Pension Contribution - £366.66
Income Tax - £785.66
N.I Tax - £384.81

In Pension
Employee contribution shows £549.99. Surely this is 40% on top of what i actually added above?
Then there is a separate Tax relief of £137.50 which is the regular 25%.
Plus same amount added by Employer.

549.99 is 1.5 times 366.66 - so can’t see where 40% comes from.

137.50 is 37.5% of 366.66 - so can’t see where 25% comes from.

Is the ‘In Pension’ figures for the year to date as £137.50 x 4 is £550.00?

Slightly mystifying!

Albermarle

 I pay £5,500 into the auto enrolment pension scheme

£5,500 divided by 12 = £458 per month.

So not £366.66, or £549.99

However I think with some companies, when you request to pay a certain amount each month to your pension, they take account of the tax relief that will be added. So if you request to pay £458 a month, they will only take 80% of that from your wages = £366.40 - knowing that the pension provider will add 25% to make the full contribution £458.

OP - In this case you have to claim back the higher rate tax relief separately by contacting HMRC, and you will either get a rebate or a tax code adjustment.

So the mystery still is where does the employee contribution of £550 per month showing in the pension come from?

OP - Is it the same £550 every month 

tunde10

Thanks!

Those set of numbers i quoted have been exact same on monthly payslip since feb-23.

Once i got a payrise and knew i'd be higher rate. I asked to increase pension contribution to 10%. But it looks like my employer deducts 8% after taking into account Tax relief.

Screenshot of pension last few months below. I still have no idea how £366.67 converts to £549.99 as i'm not in any special scheme. 

Albermarle

I can only think it is an error in your payroll department and they are making the wrong contribution to the pension company. ( or making someone else's contribution by mistake).
You will have to inform them or it will come back to bite you at some point.

Do not forget you need to claim back the higher rate tax relief at the end of the tax year by informing HMRC of your gross pension contributions ( incl tax relief) in 23/24.

tunde10

Albermarle said:

I can only think it is an error in your payroll department and they are making the wrong contribution to the pension company. ( or making someone else's contribution by mistake).
You will have to inform them or it will come back to bite you at some point.

Do not forget you need to claim back the higher rate tax relief at the end of the tax year by informing HMRC of your gross pension contributions ( incl tax relief) in 23/24.

 I have worked out what has happened. I don't think i am actually better off.

As you can see from MSE calculator below. My take home pay should be £3,192 instead of the £3,045 i receive month. This is due to being Income taxed @ £786 instead of £639 per the calculator below. The difference between the two figures is £147.

The difference between how much extra i am getting added to pension monthly is £183 (£549-£366) which coincidentally is £147 with 25% relief added? I'm not sure why this is happening

I did bring this up with my chairman who deals with the outsourced payroll queries, but he dismissed this and said it is correct after checking the payslip. So i don't really want to bring it up again. Solution may just be to go back to contributing the minimum 5% then start a private pension. Although this means a Tax return and reclaiming the 40% tax back at end of Tax year. Thanks for your help!