Relief at Source

Anna1912

Hi
Im high rate tax payer, my new company pays relief at source.

I was usually doing pension salary sacrifice to qualify for the child benefit.

Now my head goes round and I think I'm loozing money because of my employer's chosen scheme.

Can anybody enlgihten me? Thanks

xylophone

If you are a higher rate taxpayer and your workplace pension scheme operates RAS, you will need to claim the additional relief from HMRC.

https://www.litrg.org.uk/tax-guides/tax-basics/do-i-have-join-pension-scheme/do-you-know-how-tax-relief-your-pension

To continue to benefit from full CB, you would increase your contributions to your workplace pension.

https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/reduce-high-income-child-benefit-charge#:~:text=Certain deductions are allowed, such,of income over £50,000.

Anna1912

@xylophone - I understand but I run the calculation and I'm loozing money in comparison to salary sacrifice as the releif I claim goes to pension but with salary sacrifice I was getting money in my bank account. I don't understand how but there is a difference

zagfles

It works out the same with the same gross contribution. (as far as tax goes anyway, NI is different)

With sal sac you sacrifice salary eg £5k salary and don't get taxed on that £5k. If the whole £5k was in the higher rate band you'd save £2k tax.

With RAS to pay £5k gross you'd actually pay £4k and the pension provider would claim £1k. Gross into the pension is £5k, same as above. If you pay higher rate tax you'd be able to claim additional relief, that would go to you not the pension. If the whole £5k was in the higher rate band you'd get £1k back off HMRC. So £5k into pension costs £3k.

Your "adjusted net income" is also reduced by £5k in both cases. ANI is used for child ben and other stuff.

Albermarle

Anna1912 said:

@xylophone - I understand but I run the calculation and I'm loozing money in comparison to salary sacrifice as the releif I claim goes to pension but with salary sacrifice I was getting money in my bank account. I don't understand how but there is a difference

You have it the wrong way around.
With salary sacrifice all tax relief is paid automatically into your pension ( in fact it is not really tax relief, it is just that you never pay the tax on the pension contribution in the first place)
With Relief at source, the pension provider pays basic rate tax relief, and any further relief as a higher rate tax payer you either get back as a rebate to your bank account, or as higher take home pay.

With salary sacrifice you also do not pay the 2% NI.

Logically most employers should use salary sacrifice as it can be a gain for them too, but for various reasons some choose not to.

xylophone

I understand but I run the calculation and I'm loozing money in comparison to salary sacrifice as the releif I claim goes to pension 

I don't understand what you mean - see https://www.taxassist.co.uk/resources/articles/tax-relief-on-pension-contributions-for-higher-rate-taxpayers#:~:text=If you're making contributions,relief is due to you.

Have you contacted HMRC concerning higher rate relief?

but with salary sacrifice I was getting money in my bank account. I don't understand how but there is a difference

 Like this?

https://getpenfold.com/employer-tools/salary-sacrifice-pensions-explained

Pat38493

Note that the 20% tax relief that gets added back to your pension might not appear in your pension account on the same date as the contribution - it might arrive a month or two later 

Anna1912

I got it, it is a math problem. My HR takes more than they should as they should be taking as they work on relief at source calculation and I work off salary sacrifice. Thank you for your help