Workplace pension tax relief

Organgrinder

Hi....hoping someone knows the answer (it's probably obvious but I'd like it confirmed).

I have several sources of income. My main one is all taxed at the basic rate. I pay into a work based pension so get basic rate tax relief.

My other sources of income take me into the higher tax bracket. I pay no higher rate tax under PAYE but will owe HMRC once my tax calculation is done.

Would I be right in thinking I'll be able to claim higher rate relief on my pension contributions provided I pay sufficient higher rate tax to do do.

Thank you in advance.

Dazed_and_C0nfused

What method is used to pay these contributions?  Unless you know that no one can answer your question.

Relief at source
Net pay
Salary sacrifice

Organgrinder

Relief at source. 

Dazed_and_C0nfused

Organgrinder said:

Relief at source. 

In that case you only ever get basic rate relief from the pension company and need to provide HMRC with details of you contributions so they can allow any higher rate relief due.

If you complete a tax return for some reason you simply include them in the return and the relief is included in your Self Assessment calculation.

zagfles

Organgrinder said:

Relief at source. 

Be aware that "relief at source" is a very misleading term - it means that the pension contribution is taken after tax is applied, so in your payslip you're taxed on your entire wage including the pension contribution, and the pension provider claims basic rate relief, you'll see tax reclaims on your pension statement. 

If this applies it's RAS and you can claim extra tax relief if you're a higher rate taxpayer. 

Organgrinder

Thank you. Though I've confused the netpay and at source terminology. Sorry.

Would this be the same if it is net pay?

To help my tax code is BR1. Everything I earn on that employment is taxed at 20%. On other earnings my tax allowance is spread over the earnings, but again I only ever pay 20%.

For the sake of an easyish calculation my gross pension contributions are £5000 with an effective reduction in income tax of £1000 - so net £4K

I earn approx £10k over the higher rate threshold but will have paid £2k in tax with another £2k due which has not been collected by PAYE. Am I due another £1,000 reduction in respect of my workplace pension contributions?

If so.....and to complicate it further......would my £4k of private pension contributions of which I already get £1k added in tax relief also reduce my higher tax due down to zero?

Dazed_and_C0nfused

Organgrinder said:

Thank you. Though I've confused the netpay and at source terminology. Sorry.

Would this be the same if it is net pay?

To help my tax code is BR1. Everything I earn on that employment is taxed at 20%. On other earnings my tax allowance is spread over the earnings, but again I only ever pay 20%.

For the sake of an easyish calculation my gross pension contributions are £5000 with an effective reduction in income tax of £1000 - so net £4K

I earn approx £10k over the higher rate threshold but will have paid £2k in tax with another £2k due which has not been collected by PAYE. Am I due another £1,000 reduction in respect of my workplace pension contributions?

If so.....and to complicate it further......would my £4k of private pension contributions of which I already get £1k added in tax relief also reduce my higher tax due down to zero?

No, no further relief is due on your net pay contributions.  You have already received the maximum possible relief due.

Just think about how much extra basic rate band you have available because of making net pay contribution.

If you are still a higher rate payer you will be due additional tax relief on your relief at source contributions.

Organgrinder

Thank you  So obvious really!!! I just kept going round in circles in my head. 

Wrote it on paper......and there it was, staring me in the face!!

Marcon

Have you asked if your employer will allow contributions to be made by salary sacrifice? You'll get the same amount of tax relief, plus you - and the employer - will get a saving on NI.