Implications of incorrect tax relief on salary sacrifice payments

Shimrod

The company I worked for had a salary sacrifice arrangement for pension contributions. For some reason last July, they processed the payment as 'relief at source' so I received tax relief on my pension contribution for that month (as did the rest of the staff) that I should not have done. 

This was raised with payroll and senior management and was supposed to have been corrected the following month. Despite chasing up, no correction has been applied for this.

I've since left the company and will be transferring the pension to a SIPP this month. Having googled for a bit (and read this article https://www.gov.uk/guidance/tell-hmrc-youve-claimed-too-much-relief-at-source-for-pension-scheme-members)  I think the onus to inform HMRC and repay the tax relief lies with company rather than me. 

I'm wondering if I need to try and correct this directly with HMRC  (maybe via a self-assessment after April) or do I just wait and see if the company gets in touch at some point politely asking for a refund.

Albermarle

I'm wondering if I need to try and correct this directly with HMRC  (maybe via a self-assessment after April)

In theory yes, but is quite likely any communication with HMRC on this sort of subject will result in a lot of confusion at their end, and maybe multiple contacts ( all of which could entail hanging on the phone for ages).
So it might not be strictly the correct legal answer, but I would be tempted to let sleeping dogs lie.
However be aware that something may be picked up in future.

Dazed_and_C0nfused

Shimrod said:

The company I worked for had a salary sacrifice arrangement for pension contributions. For some reason last July, they processed the payment as 'relief at source' so I received tax relief on my pension contribution for that month (as did the rest of the staff) that I should not have done. 

This was raised with payroll and senior management and was supposed to have been corrected the following month. Despite chasing up, no correction has been applied for this.

I've since left the company and will be transferring the pension to a SIPP this month. Having googled for a bit (and read this article https://www.gov.uk/guidance/tell-hmrc-youve-claimed-too-much-relief-at-source-for-pension-scheme-members)  I think the onus to inform HMRC and repay the tax relief lies with company rather than me. 

I'm wondering if I need to try and correct this directly with HMRC  (maybe via a self-assessment after April) or do I just wait and see if the company gets in touch at some point politely asking for a refund.

Do you mean that it was processed as salary sacrifice on your payslip i.e. your taxable pay was less than it would otherwise have been that pay period.

And then when the money was paid over to the pension company that payment was treated as a relief at source payment and basic rate pension tax relief was added to the payment within your pension.  Despite it actually being an employer contribution?

Shimrod

Dazed_and_C0nfused said:

Shimrod said:

The company I worked for had a salary sacrifice arrangement for pension contributions. For some reason last July, they processed the payment as 'relief at source' so I received tax relief on my pension contribution for that month (as did the rest of the staff) that I should not have done. 

This was raised with payroll and senior management and was supposed to have been corrected the following month. Despite chasing up, no correction has been applied for this.

I've since left the company and will be transferring the pension to a SIPP this month. Having googled for a bit (and read this article https://www.gov.uk/guidance/tell-hmrc-youve-claimed-too-much-relief-at-source-for-pension-scheme-members)  I think the onus to inform HMRC and repay the tax relief lies with company rather than me. 

I'm wondering if I need to try and correct this directly with HMRC  (maybe via a self-assessment after April) or do I just wait and see if the company gets in touch at some point politely asking for a refund.

Do you mean that it was processed as salary sacrifice on your payslip i.e. your taxable pay was less than it would otherwise have been that pay period.

And then when the money was paid over to the pension company that payment was treated as a relief at source payment and basic rate pension tax relief was added to the payment within your pension.  Despite it actually being an employer contribution?

That's right -my payslip was correct, but the actual contribution into the pension scheme was incorrect. So instead of a single employer contribution appearing in the pension, it appeared as employee contribution, employer contribution and tax relief.

Dazed_and_C0nfused

Shimrod said:

Dazed_and_C0nfused said:

Shimrod said:

The company I worked for had a salary sacrifice arrangement for pension contributions. For some reason last July, they processed the payment as 'relief at source' so I received tax relief on my pension contribution for that month (as did the rest of the staff) that I should not have done. 

This was raised with payroll and senior management and was supposed to have been corrected the following month. Despite chasing up, no correction has been applied for this.

I've since left the company and will be transferring the pension to a SIPP this month. Having googled for a bit (and read this article https://www.gov.uk/guidance/tell-hmrc-youve-claimed-too-much-relief-at-source-for-pension-scheme-members)  I think the onus to inform HMRC and repay the tax relief lies with company rather than me. 

I'm wondering if I need to try and correct this directly with HMRC  (maybe via a self-assessment after April) or do I just wait and see if the company gets in touch at some point politely asking for a refund.

Do you mean that it was processed as salary sacrifice on your payslip i.e. your taxable pay was less than it would otherwise have been that pay period.

And then when the money was paid over to the pension company that payment was treated as a relief at source payment and basic rate pension tax relief was added to the payment within your pension.  Despite it actually being an employer contribution?

That's right -my payslip was correct, but the actual contribution into the pension scheme was incorrect. So instead of a single employer contribution appearing in the pension, it appeared as employee contribution, employer contribution and tax relief.

I'm not sure trying to fix this via Self Assessment is even possible without you further fudging things.

And what would you then do if the pension tax relief is taken out of your pension?

I think I'm probably siding with @Albermarle on this one.  

Just remember that the pension tax relief may be removed at some point in the future.

Shimrod

Albermarle said:

So it might not be strictly the correct legal answer, but I would be tempted to let sleeping dogs lie.
However be aware that something may be picked up in future.

Dazed_and_C0nfused said:

And what would you then do if the pension tax relief is taken out of your pension?

I think I'm probably siding with @Albermarle on this one.  

Just remember that the pension tax relief may be removed at some point in the future.

Thank both. This is the approach I was thinking of taking, but really just wanted to check if anyone had any other experiences of how best to handle this. I will just wait and see what happens.

saajan_12

I'd perhaps contact the pension provider and explain what it should be. That's where the issue is (even if it came from your employer sending the wrong information). 

Shimrod

saajan_12 said:

I'd perhaps contact the pension provider and explain what it should be. That's where the issue is (even if it came from your employer sending the wrong information). 

My understanding (from the link I posted above) is that the employer has to drive the correction as it was a payroll error. They can only apply the contributions in the manner in which they have been told. 

It's entirely possible they have decided to write this off and just pay the additional tax/NI that is incurred - although I have read elsewhere the employer can only ask me for the money back. It would have been much easier if they had unwound and re-applied the pension contribution at the time. The one attempt they did have to try and fix it just resulted in an additional employer payment into my pension in September.
The total additional payments into my pension total around £1900 (approx £1200 tax relief and £700 additional employer contribution).

SacredStephan

It's your former employer's error, don't report it to HMRC, don't worry about it.