AVCs - pay gross or net?

jwomorningglory

Hi. I'm looking at paying Additional Voluntary Contributions either into the NHS AVC scheme paying gross (taxed less) or paying into a separate scheme net (taxed more) but then getting tax relief. They seem to work out the same either way for take home pay and amount in the scheme per month. 

Have I got the tax understanding right? Payroll and scheme administrators won't give me an answer.

Thanks in advance

Dazed_and_C0nfused

jwomorningglory said:

Hi. I'm looking at paying Additional Voluntary Contributions either into the NHS AVC scheme paying gross (taxed less) or paying into a separate scheme net (taxed more) but then getting tax relief. They seem to work out the same either way for take home pay and amount in the scheme per month. 

Have I got the tax understanding right? Payroll and scheme administrators won't give me an answer.

Thanks in advance

They generally give the same outcome, just in totally different ways.

If the AVC is via payroll then your taxable income will be less so you pay say £100 but that saves you paying £20 in tax so the real cost to you is just £80.

With a separate pension you will no doubt be using the relief at source method.  So if you want £100 in that separate pension you would pay £80 and the pension company adds £20 in basic rate tax relief.  Giving you £100 in the pension.  The £20 being 20% of the gross contribution.  This has no impact on your taxable income whatsoever, you pay the same tax under PAYE.

It gets a bit more complicated if you pay tax above the basic rate.

Marcon

jwomorningglory said:

Hi. I'm looking at paying Additional Voluntary Contributions either into the NHS AVC scheme paying gross (taxed less) or paying into a separate scheme net (taxed more) but then getting tax relief. They seem to work out the same either way for take home pay and amount in the scheme per month. 

Have I got the tax understanding right? Payroll and scheme administrators won't give me an answer.

Thanks in advance

They aren't being deliberately unhelpful or obstructive - they are (quite correctly) declining to give what amounts to tax advice.

SarahB16

Dazed_and_C0nfused said:

jwomorningglory said:

Hi. I'm looking at paying Additional Voluntary Contributions either into the NHS AVC scheme paying gross (taxed less) or paying into a separate scheme net (taxed more) but then getting tax relief. They seem to work out the same either way for take home pay and amount in the scheme per month. 

Have I got the tax understanding right? Payroll and scheme administrators won't give me an answer.

Thanks in advance

They generally give the same outcome, just in totally different ways.

If the AVC is via payroll then your taxable income will be less so you pay say £100 but that saves you paying £20 in tax so the real cost to you is just £80.

With a separate pension you will no doubt be using the relief at source method.  So if you want £100 in that separate pension you would pay £80 and the pension company adds £20 in basic rate tax relief.  Giving you £100 in the pension.  The £20 being 20% of the gross contribution.  This has no impact on your taxable income whatsoever, you pay the same tax under PAYE.

It gets a bit more complicated if you pay tax above the basic rate.

It would be worth you checking to see if you would receive NI savings (some DB AVCs do) if you paid gross so you would therefore save more if you had the AVC deducted gross via payroll.