HMRC is TAXING certain Pension CONTRIBUTIONS

TheBanker

apn64 said:

So, notwithstanding the fact they don't even tell us they owe us money, when challenged, HMRC is dishonestly keeping 25% of the taxes paid. At a marginal rate of 40%, that amounts to a 10% effective tax on pension contributions.

The above is what I have personally experienced with HMRC going back to the 2019-20 tax year, and for the life of me, I'm not able to find an error in my analysis or calculations. If you can, then kindly post here, but in the meantime, I've challenged HMRC and would like to highlight this injustice to the MSE leadership to make more people aware of this situation.

Unfortunatly as others have pointed out your maths is wrong. The system is working as it should, and given millions of people are contributing to pensions, many of whom have professional advisors, if there was an error in HMRC's calculations someone would have discovered it long before now.

However in your case I think HMRC would be entitled to keep 10% to cover the cost of the unnecessary administration and complaint handling work you've generated.

Dazed_and_C0nfused

TheBanker said:

apn64 said:

So, notwithstanding the fact they don't even tell us they owe us money, when challenged, HMRC is dishonestly keeping 25% of the taxes paid. At a marginal rate of 40%, that amounts to a 10% effective tax on pension contributions.

The above is what I have personally experienced with HMRC going back to the 2019-20 tax year, and for the life of me, I'm not able to find an error in my analysis or calculations. If you can, then kindly post here, but in the meantime, I've challenged HMRC and would like to highlight this injustice to the MSE leadership to make more people aware of this situation.

Unfortunatly as others have pointed out your maths is wrong. The system is working as it should, and given millions of people are contributing to pensions, many of whom have professional advisors, if there was an error in HMRC's calculations someone would have discovered it long before now.

However in your case I think HMRC would be entitled to keep 10% to cover the cost of the unnecessary administration and complaint handling work you've generated.

Or even 10% + VAT 😂

Triumph13

I have to say I much prefer the "I can't understand where I'm going wrong with my maths" posters on this subject, to the "Wake up sheeple!" ones.  Schoolboy algebra indeed.

Albermarle

Triumph13 said:

I have to say I much prefer the "I can't understand where I'm going wrong with my maths" posters on this subject, to the "Wake up sheeple!" ones.  Schoolboy algebra indeed.

Yes to be fair I was a bit confused in the past about how it all worked, until it was explained to me on here.
However I did not phone HMRC first, and accuse them of robbing me, and millions of others !

hugheskevi

Dazed_and_C0nfused said:

eskbanker said:

ali_bear said:

Well the OP has made exactly 1 posting. Possibly it's just a troll. 

These days if you come across something online which only confuses and inflames, there's a good chance it came from a troll, troll-bot or some kind of AI-enabled trollaton. By all means give them the benefit of the doubt, but don't care if they don't. 

Every poster on here has exactly one post when starting out - OP put way too much effort into their post for it to be a troll or AI, so personally I interpret it as genuine....

And as an ignoramus when it comes to AI would/could it actually get it that wrong (serious question) 🤔

It wouldn't get it wrong in the way the OP has, but it could get it extremely wrong in other ways. This is a very simple question, and I wouldn't expect it to go wrong with this. The biggest risk is actually material like this, which given how often online this mistake is made, the AI could perhaps conclude this was the correct approach. But it should be prioritising reputable sources like HMRC, and while detailed technical manuals that HMRC put out aren't good for humans, they are great for AI.

I've played around with AI and technical pension analysis/questions, and the AI is stunningly good. It understands even extremely technical and unique questions (ie cannot trawl web for an answer) and approaches them from first principles (eg value DB pensions with reference to annuitisation formulas and discount rates).

Where it falls down is that although it has the correct conceptional approach, it can feed in completely incorrect series to the approach it is taking. For example, when asked to calculate an employer contribution rate for a DB scheme, it used the annual amount of DB pension accrued rather than the capitalised value of the DB accrued. This gave preposterously low contribution rates that any human would realise were obviously wrong.

However, it is extremely quick to correct itself with a little bit of human input.

Overall I rated it as superior to even well-trained pension technicians in its knowledge, approach, and conclusions, just requiring a bit of knowledgable human input to keep it on track.

fwor

Dazed_and_C0nfused said:

eskbanker said:

ali_bear said:

Well the OP has made exactly 1 posting. Possibly it's just a troll. 

These days if you come across something online which only confuses and inflames, there's a good chance it came from a troll, troll-bot or some kind of AI-enabled trollaton. By all means give them the benefit of the doubt, but don't care if they don't. 

Every poster on here has exactly one post when starting out - OP put way too much effort into their post for it to be a troll or AI, so personally I interpret it as genuine....

And as an ignoramus when it comes to AI would/could it actually get it that wrong (serious question) 🤔

Yes - it would be very easy for AI to get this wrong. A basic misunderstanding about AI in this context is what the "Intelligence" applies to. If you're thinking of AI system such as ChatGPT and similar, the "intelligence" is about the use of language, and the assembly of multiple inputs into an output that makes sense (or appears to) linguistically.

But in that context, AI doesn't have any understanding of the underlying concepts, so it would have no way (for example) to validate the maths within a post like the OP's.

Unfortunately if a program like ChatGP takes as its input a post like the OP and places sufficient weight upon it, the output will be equally wrong. It has been demonstrated before that it's easy to influence the output of generative AI simply by deliberately putting false information out onto the Internet. The expectation is that correct information will outweigh incorrect information and the latter will get "weighted out" and ignored, but it doesn't always happen that way.

apn64

Just coming back from a busy weekend to catch-up on posts, and FWIW, I'm neither an AI bot nor a troll.

Many thanks to hugheskevi for explaining where I'd gone wrong.

While the algebra was fine, what's lacking is my understanding of the tax process, and I wrongly believed that for Basic Rate payers, HMRC grosses up a post-tax contribution to it's pre-tax state (hence £1K became £1.25K), and the same is not true for Higher Rate payers (i.e. £1K does not revert to £1.667K).

What I'd overlooked in my calculations is that in both the BR or HR examples, starting with a £1K after-tax contribution, £1.25K went into the pension plan.

Thanks again for your patient explanation hugheskevi and apologies for wasting the time of other readers.

Marcon

apn64 said:

Just coming back from a busy weekend to catch-up on posts, and FWIW, I'm neither an AI bot nor a troll.

Many thanks to hugheskevi for explaining where I'd gone wrong.

While the algebra was fine, what's lacking is my understanding of the tax process, and I wrongly believed that for Basic Rate payers, HMRC grosses up a post-tax contribution to it's pre-tax state (hence £1K became £1.25K), and the same is not true for Higher Rate payers (i.e. £1K does not revert to £1.667K).

What I'd overlooked in my calculations is that in both the BR or HR examples, starting with a £1K after-tax contribution, £1.25K went into the pension plan.

Thanks again for your patient explanation hugheskevi and apologies for wasting the time of other readers.

You haven't wasted anyone's time - you can bet your life that there will have been others who had exactly the same misunderstanding and hopefully might now have read hugheskevi's explanation and be a lot happier!

mc50

Now that savings interest and property rental income is now going to be a separate tax, whilst I am sure they will be added up to determine the higher rate band ... are we likely to see HMRC refusing HR pension contributions on these sources of income like CGT?

poseidon1

mc50 said:

Now that savings interest and property rental income is now going to be a separate tax, whilst I am sure they will be added up to determine the higher rate band ... are we likely to see HMRC refusing HR pension contributions on these sources of income like CGT?

A curious question since neither savings interest or property rental have ever been 'earnings' for the purpose of qualifying pension contributions. 

So to this extent HMRC will continue denying any relief ( BR or HR) for pension contributions purporting to be supported from those income sources.