Tax Relief on Pension Contributions

Claire.cuthbert

Evening all, 
I was hoping I could get some advice on whether I am due tax relief on my pension contributions. 

I live in Scotland and work as a teacher, paying into a SPPA pension which is deducted from my monthly wage. 

For 2022 - 2023:

My gross pay was £60,095 and my pension contribution is 10.4%. It appears to be deducted before tax, based on the figures on my payslip.

I have filled in a self assessment tax return for the last 3 years, as someone had advised me to due to high income child benefit, although I don’t believe these were actually necessary as my net income did not exceed £50k ….

Anyway, I phoned HMRC to query the tax relief due to paying the higher rate of tax and they told me to amend the self assessment. 

I believe I have done this right, by filling in my pension contributions in the section “Payments to your employer’s scheme which were no deducted from your pay before tax” - this amount was amended from £0.00 to £6,819 (based on my payslip contributions).

The revised calculation now says I have overpaid tax by £2,714. This obviously sounds amazing if I am due this as a refund, however I am scared to believe it as I am just worried that I haven’t filled something in correctly. 

I would really appreciate it if someone could offer some advice as I find the whole system very confusing!

thank you in anticipation! 

 

Dazed_and_C0nfused

You've got this completely wrong.  And HMRC have given duff info.  I suspect you have managed to confuse each other!

Your pension contributions will be paid using the "net pay" method.  This means your taxable income already reflects the contribution i.e. salary £60k and taxable pay £54k.

You never include net pay contributions on the pension contribution section of a Self Assessment return as you have already received the maximum possible relief.

If you have submitted that return you should get it amended asap otherwise you can expect HMRC to raise a formal enquiry into it.

I presume this should say not.  Your contributions were deducted before tax.

 “Payments to your employer’s scheme which were no deducted from your pay before tax”

Claire.cuthbert

Yes, you are right- that is a typo. It should say ‘not’.

Apologies for sounding completely dumb, I’m just trying to get my head around it all, but I think the penny is starting to drop (pardon the pun) …

please tell me if I have got this right …

If my pension is taken off my gross monthly pay, this means I am only taxed on the remaining amount, therefore I am not paying tax on my pension contributions? 

So I have already made my pension contributions tax free and am therefore not due any further tax relief? 

So do I just leave the pension section completely blank? 

Again, sorry for sounding completely dumb, but this is all new to me!

Dazed_and_C0nfused

If my pension is taken off my gross monthly pay, this means I am only taxed on the remaining amount, therefore I am not paying tax on my pension contributions? 

Correct, you are taxed on the pay after net pay pension contributions.

So do I just leave the pension section completely blank? 

Unless you have either paid into a separate "relief at source" personal pension/SIPP or made a separate lump sum payment to the SPPA scheme outside of your payslip deductions then yes, you don't enter anything in that part of the return.

One thing that doesn't quite add up is if your salary (irrelevant for tax purposes really) is £60k and you paid 10.4% in pension contributions you would normally still have some High Income Child Benefit Charge to pay 🤔

I have filled in a self assessment tax return for the last 3 years, as someone had advised me to due to high income child benefit, although I don’t believe these were actually necessary as my net income did not exceed £50k ….

xylophone

https://pensions.gov.scot/pensions-taxation/tax-relief-pension-contributions#:~:text=Your employer deducts your pension,rate of tax you pay.

Your employer deducts your pension contributions from your pay before the tax is taken off. This reduces your tax bill and means you get full tax relief whatever rate of tax you pay.

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

Net pay arrangements

Net pay arrangements are used by many traditional occupational (‘works’) pensions and also some workplace pensions set up under auto-enrolment, and do not require you to do anything to get your tax relief.

Your pension contributions are deducted from your salary by your employer before income tax is calculated on it, so you get relief on the amount immediately at your highest rate of tax.

So, if you earn £300 a week, and pay 5% (£15) in pension contributions, you will only pay tax on wages of £285. As you do not pay tax on the £15 of your earnings that you put in as your pension contribution, you are therefore saving tax of £3 (£15 x 20%), meaning your £15 contribution is only really costing you £12.

You do not usually need to put details of pension contributions made in this way on your Self Assessment tax return (if you complete one) or tell HMRC about the contributions in any other way at all. This is because exactly the correct amount of tax relief is usually given on the contribution via the payroll and there is nothing else to do.

Occasionally, full relief on pension contributions to a net pay arrangement might not be given through the payroll and a claim for relief will need to be made. HMRC’s pensions tax manual explains this.

Claire.cuthbert

@Dazed_and_C0nfused

I maybe have made a mistake with this too…. 

I think I took my gross pay minus my personal allowance to get my net income and it was below £50k. Is this not correct?

how do you calculate it?

Dazed_and_C0nfused

You don't need to calculate anything, you simply enter the relevant figures on your tax return and the tax return software calculates any HICBC due.

For example say your return showed,
Employment income £54,000
Untaxed interest £350
Gross Gift Aid donations £100

Then you adjusted net income* would be £54,250 (54,000 + 350 - 100) and your HICBC would be 42% of the Child Benefit for that year.

The Personal Allowance isn't a factor in that calculation.

*HiCBC is based on adjusted net income, not just taxable income.

xylophone

https://www.gov.uk/child-benefit-tax-calculator

might help.