Migration Question

kaMelo

If you contribute £100 into a private pension from your net pay your "earnings", for the purpose of UC calculations are £100 less, it's that simple.   
What you're asking is should your earnings, for the purpose of UC calculations, be reported as £125 less (£100 from your net pay, £25 from HMRC)  No as your earnings didn't reduce by £125, they only reduced by £100. 

Yamor

spaniel101 said:

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 ?

I agree that the wording of the legislation is not helpful, especially as it refers (in Reg 53) to the Finance Act 2004, s.188, where “relievable pension contribution” does indeed mean the gross amount. However, it is pretty much accepted that in the UC context it means the net contribution.

By contrast, it is helpful to look at the tax credits regulations, which clearly specify that you must add the tax relief to the amount of the contribution. See the Tax Credits (Definition and Calculation of Income) Regulations 2002, Reg 3(7)(c).

As kaMelo says, it would be completely illogical for the gross contribution to be deducted, and would be very unfair.

You could try and appeal any decision made by UC to use the net contribution on the basis of the reference to FA 2004, but I think DWP would succeed on a purposive reading of the Regs, and on fairness grounds.