Confused about increasing pension contributions in order to lower tax bracket

johnstev

Hello,

I'm a higher rate taxpayer and i am looking to increase my workplace pension contributions in order to save a bit on income tax. Employer is using relief at source method.

My confusion arises mostly from my self assessment and whether I need to tailor it or not. 

When my SA asks about my gross taxable income, should I be deducting my pension contributions from that number to effectively "lower my salary"?

I've always just used the values from my P60 which does not have any pension deductions on it, so I'm wondering how it works if all HMRC can see is my gross salary. 

many thanks 

[Deleted User]

Your gross taxable income IS what is shown on your P60. Pension contributions do not reduce your taxable income but they do decrease the amount of tax that you will pay at 40%. 

An annual contribution by you, for example, of £8000 will increase your basic rate band by £10000. £10000 less of your income will be taxed at 40%. 

There is a different section on the form to enter relief at source contributions. 

On this manual form - first a box under tax reliefs. 

https://assets.publishing.service.gov.uk/media/642c0ac77de82b000c31355c/SA100_tax_return_English_2023.pdf

Phoenix72

johnstev said:

Hello,

I'm a higher rate taxpayer and i am looking to increase my workplace pension contributions in order to save a bit on income tax. Employer is using relief at source method.

My confusion arises mostly from my self assessment and whether I need to tailor it or not. 

When my SA asks about my gross taxable income, should I be deducting my pension contributions from that number to effectively "lower my salary"?

I've always just used the values from my P60 which does not have any pension deductions on it, so I'm wondering how it works if all HMRC can see is my gross salary. 

many thanks 

No!

You are not reducing your salary, your relief at source contributions extend your basic rate band thereby reducing the amount of higher rate tax you pay.

You enter the gross amount of contributions in the box headed 'Payments to registered pension schemes operating relief at source' of your SA100.

johnstev

This makes sense. Thank you both for responding.

I'm in a pickle now though as I need to try and backdate this. I think I can do it with overpayment relief for previous tax years.

Would speaking to a tax advisor be wise do you think? It seems quite complex to work out what I might be able to claim back. 

Dazed_and_C0nfused

You can never back date pension contributions.

Where have you read anything that suggests otherwise 🤔

johnstev

I can't backdate as such but i can use overpayment relief instead. This is what HMRC told me.

It seems quite complex however.

Dazed_and_C0nfused

johnstev said:

I can't backdate as such but i can use overpayment relief instead. This is what HMRC told me.

It seems quite complex however.

When did you make the pension contributions that you plan on using overpayment for?

I'm a higher rate taxpayer and i am looking to increase my workplace pension contributions in order to save a bit on income tax. Employer is using relief at source method.

[Deleted User]

johnstev said:

I can't backdate as such but i can use overpayment relief instead. This is what HMRC told me.

It seems quite complex however.

Overpayment relief is generally for mistakes that were made in earlier year’s returns? Is this what has happened?

johnstev

Dazed_and_C0nfused said:

johnstev said:

I can't backdate as such but i can use overpayment relief instead. This is what HMRC told me.

It seems quite complex however.

When did you make the pension contributions that you plan on using overpayment for?

I'm a higher rate taxpayer and i am looking to increase my workplace pension contributions in order to save a bit on income tax. Employer is using relief at source method.

The last 4 years, I can amend only one of these through self assessment 

johnstev

[Deleted User] said:

Your gross taxable income IS what is shown on your P60. Pension contributions do not reduce your taxable income but they do decrease the amount of tax that you will pay at 40%. 

An annual contribution by you, for example, of £8000 will increase your basic rate band by £10000. £10000 less of your income will be taxed at 40%. 

There is a different section on the form to enter relief at source contributions. 

On this manual form - first a box under tax reliefs. 

I've taken a look at last year's tax return which I believe I submitted correctly with pension contributions added. I was given some money back, I think this was maybe tax relief but my tax code remained unchanged. If my basic rate went up I should have got s new tax code is that right?

Dazed_and_C0nfused

johnstev said:

[Deleted User] said:

Your gross taxable income IS what is shown on your P60. Pension contributions do not reduce your taxable income but they do decrease the amount of tax that you will pay at 40%. 

An annual contribution by you, for example, of £8000 will increase your basic rate band by £10000. £10000 less of your income will be taxed at 40%. 

There is a different section on the form to enter relief at source contributions. 

On this manual form - first a box under tax reliefs. 

I've taken a look at last year's tax return which I believe I submitted correctly with pension contributions added. I was given some money back, I think this was maybe tax relief but my tax code remained unchanged. If my basic rate went up I should have got s new tax code is that right?

Sometimes but not always, depends how you answered a particular question near the end of your return.

But a tax code is only ever a method of getting provisional relief, if you file tax returns then your return establishes the actual liability and any extra relief due.

If you have been filing accurate returns, including the relief at source pension contributions, then I don't see why an overpayment relief claim is needed?