Migration Question

SpeedSouth

Not seen this one answered already. 

At the start of every year I estimate our earnings on the tax credit site.

This is based on our salaries and contributions we will make to personal pensions in March from our taxed savings accounts.  Payment after tax not from earnings/salaries.

Each year at renewal stage DWP think we've earned more than we have and we have to go through the process of proving the payments to SIPPs.  All shakes out and TC award stands.

However if we migrate mid tax year as is looking likley by the amount of people getting migration letters we would have on a pro rata basis earned more than I'd declared.  What happens in this scenario?  Do they count up our TC to date before migrating us?  Will they ignore and move on?

Should we make a pro ratad SIPP payment before we migrate to get our TC inline with what I've declared online at the start of the year?

Alice_Holt

"Should we make a pro ratad SIPP payment before we migrate to get our TC inline with what I've declared online at the start of the year? "

That sounds a good idea to me.

Be aware that getting UC to accept your personal pension contributions may be difficult.
https://forums.moneysavingexpert.com/discussion/6001734/universal-credit-and-private-pension-contributions/p1

Yamor

If you claim UC mid-year they will almost certainly* carry out what is called an “in-year finalisation” of your tax credits, and only income received in the part year when you were entitled to tax credits will count. Similarly, only charity given and pension contributions made in that part year will count.

You should therefore certainly consider making some pension contributions before your tax credits end. However, depending on your circumstances, pension contributions when on UC might be better value, so you may wish to make all your pension contributions when you’re on UC. (You will then anyway be looking to make your pension contributions monthly rather than annually.)

The process can lead to some funny results anyway. For example, if you are paid on the last day of the month, and claim UC on the 30th Sep, then your tax credits will end on the 29th. Your part year tax credit award will have lasted for almost 6 months, but you would have only received 5 sets of wages. This could lead to your final tax credit entitlement for the part year being higher than expected.

* I say “almost certainly” because they do have the discretion not to do this, however, I have never heard of them not doing it…

SpeedSouth

Thanks both.   I'll make a pro ratad payment then at the point we are forced to migrate.

I have read the various threads about people struggling to get pension payments taken into account.  I'd not seen the one you linked so not looking forward to that fight. 

Yamor

As I mentioned above, you could be better off by making the pension contribution when you are on UC.

Say you make an £80 pension contribution, grossed up to £100. For tax credits, that would increase your award by a maximum of £41 (£100 * 41%). On Universal Credit, your award could increase by £44 (£80 * 55%).

So it may be better to delay the contributions until you are on UC...

SpeedSouth

Reading through previous posts of the difficulty/refusal of the UC staff to accept additional pension payments I think I'd accept the £3 deficit for a system I know to work already.

But thanks for putting a value on the difference.

spaniel101

I spoke with HMRC (TC) last week with this very question.   

I was advised to await the in-year finalization letter (with their presumed figures) and then contact them, within the prescribed 30 days response time, with the correct figures and appropriate evidence  (pension contribution statements).

I will have had 8 monthly salaries and 9 monthly gross pension contributions, which will result in approximately 'minus £1500' earned income.   HMRC clarified that I would need to put £0, given that their systems don't accept 'minus' figures (and I recall this from TC annual renewals).   This is okay by me given the timing (I'd rather get the salaries in the SIPP in case there are 'further problems' on UC.   

On UC, monthly salaries will be received, then 2 weeks later SIPP contribution paid from that income (it was the other way around on TC). 

As I mentioned above, you could be better off by making the pension contribution when you are on UC.

Say you make an £80 pension contribution, grossed up to £100. For tax credits, that would increase your award by a maximum of £41 (£100 * 41%). On Universal Credit, your award could increase by £44 (£80 * 55%).

So it may be better to delay the contributions until you are on UC...

I had presumed, perhaps incorrectly (if and when the entire issue is ironed out)  that UC should disregard the 'Gross pension contribution' from income (not purely Net) but perhaps someone could clarify this for me?

kaMelo

UC is calculated on net pay, tax credits calculated on gross hence the different calculation figures but it all works out the same in the end.

spaniel101

Apologies, perhaps it was the way I worded my question.   I understand fully the UC calculations.   In terms of the pension contribution Disregard, I am minded to believe this would be the Gross pension contribution (i.e. 75% + 25% hmrc tax relief) disregarded, as oppossed to purely 75% net contribution disregard, (as this would deliver a higher earned income taken into account for UC calculations, the former, a lower earned income).  Tax Credits was indeed Gross pension contribution disregarded.  Reg 55 (5) (a) says 'any relievable pension contributions made by the person in that period' - is it a given that this is interpreted as 'Gross' (the same as Tax Credits) ?  I'd be grateful for any clarification.

kaMelo

spaniel101 said:

Apologies, perhaps it was the way I worded my question.   I understand fully the UC calculations.   In terms of the pension contribution Disregard, I am minded to believe this would be the Gross pension contribution (i.e. 75% + 25% hmrc tax relief) disregarded, as oppossed to purely 75% net contribution disregard, (as this would deliver a higher earned income taken into account for UC calculations, the former, a lower earned income).  Tax Credits was indeed Gross pension contribution disregarded.  Reg 55 (5) (a) says 'any relievable pension contributions made by the person in that period' - is it a given that this is interpreted as 'Gross' (the same as Tax Credits) ?  I'd be grateful for any clarification.

All pension contributions made into a private pension are net of tax, any contributions are then grossed up to 100% by HMRC. For every pound in your pension pot you paid 80%, HMRC topped up the other 20%, (Assuming a basic rate tax payer)

Tax credits were calculated on gross annual pay,  to calculate the impact of pension contributions made from net pay on gross annual income calculations, pension contributions are grossed up and deducted.

UC is calculated on net pay in all circumstances, money you actually receive in your hand. You can't make a deduction for the tax added to your pension pot as you never had the tax money in your hand, if you stopped the pension contributions you still wouldn't have the tax money in your hand. There is no way to avoid paying the tax. (although making pension contributions means you receive the tax paid back into your pension pot)

spaniel101

kaMelo said:

spaniel101 said:

Apologies, perhaps it was the way I worded my question.   I understand fully the UC calculations.   In terms of the pension contribution Disregard, I am minded to believe this would be the Gross pension contribution (i.e. 75% + 25% hmrc tax relief) disregarded, as oppossed to purely 75% net contribution disregard, (as this would deliver a higher earned income taken into account for UC calculations, the former, a lower earned income).  Tax Credits was indeed Gross pension contribution disregarded.  Reg 55 (5) (a) says 'any relievable pension contributions made by the person in that period' - is it a given that this is interpreted as 'Gross' (the same as Tax Credits) ?  I'd be grateful for any clarification.

All pension contributions made into a private pension are net of tax, any contributions are then grossed up to 100% by HMRC. For every pound in your pension pot you paid 80%, HMRC topped up the other 20%, (Assuming a basic rate tax payer)

Tax credits were calculated on gross annual pay,  to calculate the impact of pension contributions made from net pay on gross annual income calculations, pension contributions are grossed up and deducted.

UC is calculated on net pay in all circumstances, money you actually receive in your hand. You can't make a deduction for the tax added to your pension pot as you never had the tax money in your hand, if you stopped the pension contributions you still wouldn't have the tax money in your hand. There is no way to avoid paying the tax. (although making pension contributions means you receive the tax paid back into your pension pot)

I understand both TC & UC calculations.   I wasn't aware that pension contributions were reported to tax credits 'grossed up',  purely due to the 'impact' on 'gross annual income' calculations.    

Tax Credits - a Gross pension contribution is because it is a Tax Relievable contribution (tax paid when eventually in drawn down).

"You can't make a deduction for the tax added to your pension pot as you never had the tax money in your hand"         -   as we know, it goes into your pension pot, constituting 'gross relievable pension contribution' (tax relief) and is stated on pension contribution statements.

"if you stopped the pension contributions you still wouldn't have the tax money in your hand."   
- no pension contribution would simply mean no tax relievable pension contribution.   

"There is no way to avoid paying the tax."
      - I assure you I am not in any way looking to avoid paying due income tax (its already paid).

"(although making pension contributions means you receive the tax paid back into your pension pot"
-   Tax relief is a separate entity to income tax paid  (I used to earn under the personal allowance, and still received 25% tax relief).



Given Reg 55 states "Any relievable pension contribution made by the person in that period" - I take that to mean the Gross (tax relieved) contribution.   In every other avenue of life you do have to report 'Gross' pension contributions in terms of HMRC, DWP/Carers Allowance, Pensions, etc.   I don't solely report the 80% net payment I have made, they go to lengths to state '100% Gross Pension Contribution'.  I would imagine self-employed also report any relievable pension contributions as gross too.  



I am really not trying to be difficult kaMelo and I very much appreciate your help so far.   I am simply trying to get to the bottom of it which will enable me to address any potential issues with the correct information.   Maybe someone who has successfully managed this can shed some light on whether Net / Gross pension contribution Disregard ?