Reducing adjusted net income with pension contributions privately vs salary sacrifice

Quixlenoodle3

In 2024, I started to earn over 100k and paid an accountant to advise me by how much to increase my pension contributions to ensure my adjusted net income was below 100k. 

They provided me with a calculation and I confirmed in writing with them that I should increase my monthly pension contributions to this amount via salary sacrifice through my payroll. 

However, at the end of the tax year, my adjusted net income was above 100k. I queried this with the accountant who informed me that I should have made the additional payments directly to my pension provider and not through salary sacrifice and had I done this, my adjusted net income would be below 100k. 

I would appreciate advice if the accountant is considered in any way liable (either for the fee for advising me or for the additional tax I have paid) or if I should just accept responsibility and have done further research?

Thank you

Dazed_and_C0nfused

Quixlenoodle3 said:

In 2024, I started to earn over 100k and paid an accountant to advise me by how much to increase my pension contributions to ensure my adjusted net income was below 100k. 

They provided me with a calculation and I confirmed in writing with them that I should increase my monthly pension contributions to this amount via salary sacrifice through my payroll. 

However, at the end of the tax year, my adjusted net income was above 100k. I queried this with the accountant who informed me that I should have made the additional payments directly to my pension provider and not through salary sacrifice and had I done this, my adjusted net income would be below 100k. 

I would appreciate advice if the accountant is considered in any way liable (either for the fee for advising me or for the additional tax I have paid) or if I should just accept responsibility and have done further research?

Thank you

That probably depends on the terms of your contract with the accountant.  But ultimately they are your tax affairs.

However you do seem somewhat confused.

Salary sacrifice means you don't contribute to the pension, you agree to a reduced salary in return for additional employer contributions being paid into your pension.

Salary sacrifice is generally seen as the most tax efficient option as although you don't get any pension tax relief you avoid paying tax and NI on the salary you have sacrificed.  And it avoids you having to tell HMRC anything about the contributions.

DRS1

There is a difference between contributing via salary sacrifice and by personal contributions to a SIPP (say).  That will be where the confusion between you and the accountant came from.  You may need to publish the advice you received and the letter you wrote back and any reply to get any views on where the "blame" may lie.

For example if he said you need to contribute 15k net to your pension (which would then be grossed up to 18750) and you took that as saying you could pay 15k by salary sacrifice you are the one making the mistake but if your letter says I am going to pay 15k via salary sacrifice then he should have said no you need to pay 18750 by salary sacrifice.

But there could be any number of complicating factors (such as you having other income which you didn't mention to the accountant  or them not getting your letter saying HOW you were going to contribute or indeed your having said you had a clear grasp on how pension contributions worked or them sending you a leaflet explaining that which you never bothered to read) that could cloud the issue.

Quixlenoodle3

DRS1 said:

There is a difference between contributing via salary sacrifice and by personal contributions to a SIPP (say).  That will be where the confusion between you and the accountant came from.  You may need to publish the advice you received and the letter you wrote back and any reply to get any views on where the "blame" may lie.

For example if he said you need to contribute 15k net to your pension (which would then be grossed up to 18750) and you took that as saying you could pay 15k by salary sacrifice you are the one making the mistake but if your letter says I am going to pay 15k via salary sacrifice then he should have said no you need to pay 18750 by salary sacrifice.

But there could be any number of complicating factors (such as you having other income which you didn't mention to the accountant  or them not getting your letter saying HOW you were going to contribute or indeed your having said you had a clear grasp on how pension contributions worked or them sending you a leaflet explaining that which you never bothered to read) that could cloud the issue.

Thank you. I gave my accountant full details of other income etc., so they had all the required information. 

I  shared all relevant details of the existing contributions via the employer salary sacrifice scheme. The accountant calculated the amount I needed to increase to. I then specifically clarified "I will ask my employer to amend my pre-tax contribution to £x/mo in the next payroll" to which they confirmed that was correct. I queried that this was less than the gross figure they had calculated and should I increase it, but was told this amount was correct. 

DRS1

Looks to me like the confusion arose from using the words "pre-tax contribution".  That could easily be read as the net contribution before 20% tax relief is added.

You could push it and argue it should have been obvious from the context - eg all your other "employee" contributions had been made through salary sacrifice (and the accountant knew that).

Presumably you don't want to use this accountant in future?

Quixlenoodle3

DRS1 said:

Looks to me like the confusion arose from using the words "pre-tax contribution".  That could easily be read as the net contribution before 20% tax relief is added.

You could push it and argue it should have been obvious from the context - eg all your other "employee" contributions had been made through salary sacrifice (and the accountant knew that).

Presumably you don't want to use this accountant in future?

Thank you for your help. No I don't plan to use this accountant again. 

kinger101

Are there free nursery hours at risk here, or just the 60 percent tax?.

If the former, and you've not yet submitted a tax return, you can deem tax deductible charitable  donations to have be made in the prior tax year.

Quixlenoodle3

kinger101 said:

Are there free nursery hours at risk here, or just the 60 percent tax?.

If the former, and you've not yet submitted a tax return, you can deem tax deductible charitable  donations to have be made in the prior tax year.

Hi, yes there are also free nursery hours at risk. But the same accountant has also submitted by tax return already. 

DRS1

You can amend the tax return.

I think it is also possible to treat charitable donations as made in the previous tax year.

kinger101

DRS1 said:

You can amend the tax return.

I think it is also possible to treat charitable donations as made in the previous tax year.

I believe the election must be made on first submission but I might be wrong.

DRS1

kinger101 said:

DRS1 said:

You can amend the tax return.

I think it is also possible to treat charitable donations as made in the previous tax year.

I believe the election must be made on first submission but I might be wrong.

I did not know that.

On the SA form there are two boxes one of which allows you treat donations made in the current tax year as made in the previous one.  That would be available next year but I don't know what the impact would be.  You'd be waiting a year to reorganise the tax treatment of this year.

The other box allows you to treat donations made after the end of the relevant tax year as made during the relevant tax year.  That's the one I was thinking might save the day but if you can't add it later maybe not.