Self Assessment: Pension Contributions and HICB charge

daz73

I am having a disagreement with my accountant over my self assessment tax calculation as I believe he has made a mistake.

I pay in to two pensions:

• My "old" personal pension. I still pay in £10 per month (long story) which the provider grosses up.
• My "new" occupational pension. This is not a salary sacrifice pension, although it's going via payroll its done after tax (so it's also relief-at-source and the provider grosses it up).

My accountant has put only my old pension (annual gross = £150) in to box 1 of page TR-4 of the SA100. I wasn't sure this was right because both pensions are grossed-up, but he insists it's correct as "the amount is grossed up by your pension company and is therefore not included on your self-assessment return as it would effectively be double counting the tax relief". A lot of the online advice assumes company pensions are using salary sacrifice so I haven't found any concrete advice that fits my situation - I guess I'll have to take his word on this.

The bigger problem is that he's based my child benefit charge calculations on the same basis. He's calculated my 'adjusted net income' with the old pension contributions but not the new one. If my new pension is taken into account I'm under the higher income threshold, it makes a difference to my liability of over £500.

All the advice I've seen online seems to contradict his method, and say that increasing your pension contributions can be used to reduce your HICB charge. Even the HMRC calculator says you should include “pension contributions deducted from your pay (do not include contributions deducted before tax)”. 

At the moment I've refused to sign-off his calculations so he can submit the return for me, and it's stalemate. I'm thinking I should just submit myself on the HMRC site. But am I just being a stubborn idiot?

Thank you in advance for any advice given.

Dazed_and_C0nfused

daz73 said:

I am having a disagreement with my accountant over my self assessment tax calculation as I believe he has made a mistake.

I pay in to two pensions:

• My "old" personal pension. I still pay in £10 per month (long story) which the provider grosses up.
• My "new" occupational pension. This is not a salary sacrifice pension, although it's going via payroll its done after tax (so it's also relief-at-source and the provider grosses it up).

My accountant has put only my old pension (annual gross = £150) in to box 1 of page TR-4 of the SA100. I wasn't sure this was right because both pensions are grossed-up, but he insists it's correct as "the amount is grossed up by your pension company and is therefore not included on your self-assessment return as it would effectively be double counting the tax relief". A lot of the online advice assumes company pensions are using salary sacrifice so I haven't found any concrete advice that fits my situation - I guess I'll have to take his word on this.

The bigger problem is that he's based my child benefit charge calculations on the same basis. He's calculated my 'adjusted net income' with the old pension contributions but not the new one. If my new pension is taken into account I'm under the higher income threshold, it makes a difference to my liability of over £500.

All the advice I've seen online seems to contradict his method, and say that increasing your pension contributions can be used to reduce your HICB charge. Even the HMRC calculator says you should include “pension contributions deducted from your pay (do not include contributions deducted before tax)”. 

At the moment I've refused to sign-off his calculations so he can submit the return for me, and it's stalemate. I'm thinking I should just submit myself on the HMRC site. But am I just being a stubborn idiot?

Thank you in advance for any advice given.

Based on what you have posted your accountant is wrong.

A relief at source contribution is still a relief at source contribution, whether you paid into a personal pension or a workplace pension.  It is the method (relief at source) which is important.

So omitting some of your relief at source contributions would be wrong.

Most pension contributions cannot be deducted when calculating adjusted net income.  But relief at source contributions are deducted.  Not sure why he needs to do any calculations, the tax return software does all this.

NB.  The reason net pay contributions cannot be deducted is because they are already factored into your taxable income i.e. salary £60k and 10% paid via net pay = £54k on your P60.  

Salary sacrifice contributions are actually employer contributions and you can never deduct employer contributions when calculating adjusted net income.

If you are paying an accountant and then coming to a forum like this for help then maybe it's time to change accountant.  Or DIY.

zagfles

daz73 said:

I am having a disagreement with my accountant over my self assessment tax calculation as I believe he has made a mistake.

I pay in to two pensions:

• My "old" personal pension. I still pay in £10 per month (long story) which the provider grosses up.
• My "new" occupational pension. This is not a salary sacrifice pension, although it's going via payroll its done after tax (so it's also relief-at-source and the provider grosses it up).

My accountant has put only my old pension (annual gross = £150) in to box 1 of page TR-4 of the SA100. I wasn't sure this was right because both pensions are grossed-up, but he insists it's correct as "the amount is grossed up by your pension company and is therefore not included on your self-assessment return as it would effectively be double counting the tax relief". A lot of the online advice assumes company pensions are using salary sacrifice so I haven't found any concrete advice that fits my situation - I guess I'll have to take his word on this.

The bigger problem is that he's based my child benefit charge calculations on the same basis. He's calculated my 'adjusted net income' with the old pension contributions but not the new one. If my new pension is taken into account I'm under the higher income threshold, it makes a difference to my liability of over £500.

All the advice I've seen online seems to contradict his method, and say that increasing your pension contributions can be used to reduce your HICB charge. Even the HMRC calculator says you should include “pension contributions deducted from your pay (do not include contributions deducted before tax)”. 

At the moment I've refused to sign-off his calculations so he can submit the return for me, and it's stalemate. I'm thinking I should just submit myself on the HMRC site. But am I just being a stubborn idiot?

Thank you in advance for any advice given.

If this seriously is what he told you then he needs sacking to be frank! If the contribution is coming out of after tax pay and the pension company are grossing it up then it's RAS (relief at source), which should be declared with other RAS conts and which do reduce ANI. 

Just double check your payslips. RAS and sac sac aren't the only methods, there's also "net pay" which confusingly means your pension conts are deducted from gross pay before tax is applied. This is different to sal sac as it doesn't reduce actual pay, and it doesn't save NI, but it does reduce taxable pay. 

So just check how your "taxable pay to date" increases from one payslip to the next - by your pay, or by your pay minus pension conts. If the latter it's "net pay", but that also means your pension provider shouldn't be claiming tax relief. 

daz73

Many thanks @Dazed_and_C0nfused and @zagfles. You've given me a bit more confidence to sort this out myself.

Just to clarify: should I put the contributions for both pensions in the TR4 box 1?

Dazed_and_C0nfused

daz73 said:

Many thanks @Dazed_and_C0nfused and @zagfles. You've given me a bit more confidence to sort this out myself.

Just to clarify: should I put the contributions for both pensions in the TR4 box 1?

If they are definitely relief at source* contributions then yes, that is the correct box when looking at the paper return.

*Within the pension the pension company will have added 25% to your net contribution.  So £10 from you becomes £12.50 in the pension with the basic rate tax relief added.

daz73

Thanks again @Dazed_and_C0nfused.

I checked my company pension statement, and there are separate amounts for "Payroll deduction", "Company contribution" and "Tax Relief". The payroll deduction matches my pay slip. The tax relief is a quarter of the payroll deduction.