Pension contributions not treated as salary sacrifice. How to get tax refund?

chssvl

My wife is about to complete her first year at a new job (after a few months of unemployment). When she joined she was told that her pension contributions would be treated as salary sacrifice, which is why she decided to make sufficient contributions such that she wouldn't have to pay the 40% tax rate (i.e. keep her salary after pension contributions at £50k).

As she hadn't worked the whole year in the 23/24 tax year, she wouldn't really have had to pay the 40% rate and her payslips seemed broadly correct. However, the first one for this tax year came with a big tax shock, i.e. as if her pension contributions were not being treated as salary sacrifice and paying tax at the 40% rate.

She finally got through to payroll, who told her that her pension scheme was NOT a salary sacrifice scheme, but a "basic relief at source" scheme, whereby only 80% of her pension contribution are taken every month and then the 20% is claimed back from HMRC. She was also told that higher tax rate payers can claim back their tax through self assessment.

Three questions:

1. Although the "relief at source" story seems correct, this would mean that she's not getting any tax savings on NI contributions - only on income tax. Is there any way in which she could also get a refund on her NI contributions?

2. For this tax year (and the future), does she have to wait until the end of the tax year to file a self assessment and get the refund on her contributions that are being taxed at 40%? What would she need to make such a tax refund claim? She has her full tax-free allowance intact so no chance of adjustment there - I think.

3. Is there anything she could do to force her contributions to be treated as salary sacrifice or is this solely at the discretion of her employer?

Thanks

Dazed_and_C0nfused

1.  No.  Salary sacrifice is the only way she can avoid paying NI when it comes to pension contributions.

2.  No.  Does she meet any Self Assessment criteria?  Assuming not she needs to provide HMRC with details of the expected contribution in this tax year (making the net and gross amounts clear would be useful) and, more importantly, what her P60 taxable pay figure is likely to be for 2024-25.  Then HMRC can give some provisional tax relief via her tax code.

3.  She could point out the employers NI savings that salary sacrifice also results in.

chssvl

Thanks! No, she doesn't meet any self assessment criteria. How would such a submission be made to HMRC? Do you need to call them (heard that it's virtually impossible these days) or fill out some form?

Dazed_and_C0nfused

chssvl said:

Thanks! No, she doesn't meet any self assessment criteria. How would such a submission be made to HMRC? Do you need to call them (heard that it's virtually impossible these days) or fill out some form?

Calling at 8am sharp seems to be the recommended option.

Making sure she has the expected (taxable) earnings is particularly important as that determines how much higher rate relief she will benefit from.

She is making RAS (relief at source) contributions and they increase the basic rate band, moving income from being taxed at 40% to 20%.

hugheskevi

chssvl said:

Thanks! No, she doesn't meet any self assessment criteria. How would such a submission be made to HMRC? Do you need to call them (heard that it's virtually impossible these days) or fill out some form?

To note that last time I called HMRC on this they said provisional relief through Tax Code is limited to a gross contribution of £10,000 without supplying evidence of contribution and earnings.

I've been told a lot of rubbish by HMRC operatives however, so it may or may not be accurate.

Marcon

chssvl said:

She finally got through to payroll, who told her that her pension scheme was NOT a salary sacrifice scheme, but a "basic relief at source" scheme, whereby only 80% of her pension contribution are taken every month and then the 20% is claimed back from HMRC. She was also told that higher tax rate payers can claim back their tax through self assessment.

3. Is there anything she could do to force her contributions to be treated as salary sacrifice or is this solely at the discretion of her employer?

Which pension scheme is she in? There was a post on here not long ago from someone whose employer had merrily been treating a pension scheme as RAS when it was actually something called a 'net pay' scheme (wholly different tax treatment), so always worth starting with that particular check.

3. Solely at the discretion of the employer. As suggested above: point out that there is an employer NI saving as well as an employee NI saving.

chssvl

Thanks for the replies!

she's on a thing called "people's pension".

Overall pension contributions should be about £10,200 a year plus another 2k by the employer. 

I'm assuming the evidence would be the payslips plus any statement from
the pension provider, right?

xylophone

https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

If you’re paying in an amount greater than £10,000, you’ll need to contact HMRC to claim the tax relief.

Albermarle

chssvl said:

Thanks for the replies!

she's on a thing called "people's pension".

Overall pension contributions should be about £10,200 a year plus another 2k by the employer. 

I'm assuming the evidence would be the payslips plus any statement from
the pension provider, right?

She should have online access to Peoples Pension. There she should able to see her contributions and the basic rate tax relief being added.

Dazed_and_C0nfused

Albermarle said:

chssvl said:

Thanks for the replies!

she's on a thing called "people's pension".

Overall pension contributions should be about £10,200 a year plus another 2k by the employer. 

I'm assuming the evidence would be the payslips plus any statement from
the pension provider, right?

She should have online access to Peoples Pension. There she should able to see her contributions and the basic rate tax relief being added.

The employer contribution is irrelevant, she doesn't get any tax benefit from that.

But as suggested by @Albermarle she should definitely check her People's Pension account as they actually operate both relief at source and net pay methods.

https://thepeoplespension.co.uk/pension-tax/

If her contributions are relief at source she will see 25% being added to each one (20% of the gross amount including the tax relief).

xylophone

https://thepeoplespension.co.uk/support-for-pension-scheme-members/know-your-pension/pension-basics/how-it-works-pension-tax-relief/#:~:text=Relief at source&text=If you're a member,for us to do this).

Relief at source

This is when your employer takes your contributions from your net salary after tax, or if you pay contributions directly into your pot. If you’re a member of The People’s Pension, we’ll automatically claim tax relief for you at the basic rate of 20% (you’ll need to give us a valid National insurance number for us to do this).

How to claim higher tax relief on pension contributions

If you’re a higher rate taxpayer and your pension contributions are taken after tax (relief at source), you’ll need to fill in a Self-Assessment tax return and send this to HMRC to claim your extra tax relief.