Self assessment - have I made an error?

Shinynewpenny

Dear all

First SA for me due to making additional contributions to a SIPP to try to avoid HICBC.

The tax relief calculator on pension bee suggests for a £3,032 gross pension contribution, I can claim back £606 via SA. 

The actual SA calculation is showing £468.40

Taxable income for year: £52,630
Bank interest: £472
Gross pension contribution £3,032

The online calculator agreed that my SIPP payments took my total income under the HICBC threshold so there shouldn’t be any charge for the year.

Can anyone please help me to understand the difference in amounts?

Thanks for any help here.

Shinynewpenny

Should have said, this is for 2023-24 tax year (my UTR has only just come through)

[Deleted User]

Shinynewpenny said:

Should have said, this is for 2023-24 tax year (my UTR has only just come through)

You have made an error - with your contribution. To claim the additional 20% tax relief on a £3032 contribution you need to have PAID tax at the 40% rate on £3032. You didn’t. 

You paid 40%  tax on £2360 (52630 - 50270).

20% of £2360 is £472.

Dazed_and_C0nfused

Shinynewpenny said:

Dear all

First SA for me due to making additional contributions to a SIPP to try to avoid HICBC.

The tax relief calculator on pension bee suggests for a £3,032 gross pension contribution, I can claim back £606 via SA. 

The actual SA calculation is showing £468.40

Taxable income for year: £52,630
Bank interest: £472
Gross pension contribution £3,032

The online calculator agreed that my SIPP payments took my total income under the HICBC threshold so there shouldn’t be any charge for the year.

Can anyone please help me to understand the difference in amounts?

Thanks for any help here.

The calculator is using an overly simplistic view that isn't in any way realistic.  

It is telling you that you ar entitled to exactly 20% extra relief as a higher rate payer (£3,032 x 20% = £606).

But tax doesn't work like that, your Self Assessment is to calculate the total liability and then deduct any tax paid at source.

Have you tried entering everything without the pension contribution.  Note the tax due but don't submit the return.  Then add in the pension contribution and see what the new bottom line is.  The difference between the two is the tax saving from making the RAS pension contribution.

The bottom line though is you are liable to  40% tax on £3,032 so I don't know why you think you would get higher rate relief on the full contribution 🤔

Shinynewpenny

Thank you for taking the time to explain.

I’m a bit confused at how my tax relief equals the bank interest I paid - can’t work it out!! But reassured that I haven’t entered anything incorrectly on the SA so thank you. 

I will try that with seeing the calculation without the pension contribution. Thanks.

[Deleted User]

Shinynewpenny said:

Thank you for taking the time to explain.

I’m a bit confused at how my tax relief equals the bank interest I paid - can’t work it out!! But reassured that I haven’t entered anything incorrectly on the SA so thank you. 

I will try that with seeing the calculation without the pension contribution. Thanks.

For me that is a complete coincidence - I believe that my explanation is correct. 

You are able to claim higher rate tax relief on the lower of the gross contribution or the amount paid at HR. In your case £2360 at 20%. 

Dazed_and_C0nfused

Shinynewpenny said:

Thank you for taking the time to explain.

I’m a bit confused at how my tax relief equals the bank interest I paid - can’t work it out!! But reassured that I haven’t entered anything incorrectly on the SA so thank you. 

I will try that with seeing the calculation without the pension contribution. Thanks.

It's just coincidence!
NB.  I presume you mean the interest you earned, not interest you paid.

Based on your original post you are liable to pay higher rate tax on £2,360 (and would usually have paid that under PAYE).

Because of your RAS pension contributions you are only actually liable to pay 20% tax on the £2,360.

So you have avoided the extra 20% tax on £2,360.  £2,360 x 20% = £472.00 tax saving.

But under PAYE you probably underpaid £3.60 (due to how PAYE tax tables work).

£472 overpaid less £3.60 underpaid = £468.40 refund.

Shinynewpenny

Thank you so much!!! I was adding my bank interest (earned) as earnings for pension contribution as well as adding as income for HICBC purposes  - you have made it make sense now why that isn’t the case.

Really really appreciate you both taking the time to help me - very good of you both. Happy now that I’m not under claiming by making a silly error somewhere.