Tax return: Single contribution to employer salary sacrifice scheme - getting the right tax relief

nolaughingmatter

Hello
A bit of a steer would be appreciated. I had (now now longer employed) a salary sacrifice work pension. Before leaving, I made a £12k lump sum payment into the scheme from my bank account. I also had my  bonus paid into the scheme, direct.

For my tax return, I understand I don't have to declare the pension contributions or the bonus payment as they are arranged pre-tax (as a reduction on salary).

Question is about the lump sum payment and getting the right tax relief (I was a higher rate earner): where do I declare this on the tax return, especially as the pension company DID NOT add any tax relief. When I checked, they said I would have to do this on my SA with HMRC.  How do I include the right amount so HMRC know I haven't been given any tax relief on this?

Thanks

hugheskevi

Complete Box 3 "Payments to your employer’s scheme which were not deducted from your pay before tax – this will be unusual - read the notes" which is under "Tax Reliefs" on the self assessment form. It is on page 6 of 10 at the link, with the page number being "Page TR 4"

nolaughingmatter

Oh, well that's not very tricky! But I'd read somewhere that it's more often than not that the pension companies add on 20% tax relief - and this is often 'assumed' by HMRC. How does HMRC know that this hasn't been applied?

hugheskevi

nolaughingmatter said:

Oh, well that's not very tricky! But I'd read somewhere that it's more often than not that the pension companies add on 20% tax relief - and this is often 'assumed' by HMRC. How does HMRC know that this hasn't been applied?

The pension scheme didn't claim the relief for you from HMRC, so the absence of a Relief-at-Source claim along with the information all pension schemes send to HMRC about pension contributions gives HMRC all the information they need to validate your self-assessment declaration about contributions.

The issues you have read about are where the extra relief is being claimed outside of self-assessment. The self-assessment system is correctly programmed to apply the relief appropriately, whereas when humans are doing the calculations many HMRC staff are unaware of the different rules that apply.

Albermarle

Someone in a very similar situation.
https://forums.moneysavingexpert.com/discussion/comment/81728804#Comment_81728804

Grumpy_chap

nolaughingmatter said:

Hello
A bit of a steer would be appreciated. I had (now now longer employed) a salary sacrifice work pension. Before leaving, I made a £12k lump sum payment into the scheme from my bank account. I also had my  bonus paid into the scheme, direct.

For my tax return, I understand I don't have to declare the pension contributions or the bonus payment as they are arranged pre-tax (as a reduction on salary).

Question is about the lump sum payment and getting the right tax relief (I was a higher rate earner): where do I declare this on the tax return, especially as the pension company DID NOT add any tax relief. When I checked, they said I would have to do this on my SA with HMRC.  How do I include the right amount so HMRC know I haven't been given any tax relief on this?

Thanks

Have you confirmed that the total contributions are within your AA?
That is all employer contributions plus all employee contributions plus the £12k once grossed up.

hugheskevi

Grumpy_chap said:

nolaughingmatter said:

Hello
A bit of a steer would be appreciated. I had (now now longer employed) a salary sacrifice work pension. Before leaving, I made a £12k lump sum payment into the scheme from my bank account. I also had my  bonus paid into the scheme, direct.

For my tax return, I understand I don't have to declare the pension contributions or the bonus payment as they are arranged pre-tax (as a reduction on salary).

Question is about the lump sum payment and getting the right tax relief (I was a higher rate earner): where do I declare this on the tax return, especially as the pension company DID NOT add any tax relief. When I checked, they said I would have to do this on my SA with HMRC.  How do I include the right amount so HMRC know I haven't been given any tax relief on this?

Thanks

Have you confirmed that the total contributions are within your AA?
That is all employer contributions plus all employee contributions plus the £12k once grossed up.

There is no grossing up of the £12k - it is a lump sum contribution without tax relief being applied at source. The member will reclaim all the relief due from HMRC and that will form part of the self-assessment outcome, with no further funds going to the pension provider.

DRS1

Grumpy_chap said:

nolaughingmatter said:

Hello
A bit of a steer would be appreciated. I had (now now longer employed) a salary sacrifice work pension. Before leaving, I made a £12k lump sum payment into the scheme from my bank account. I also had my  bonus paid into the scheme, direct.

For my tax return, I understand I don't have to declare the pension contributions or the bonus payment as they are arranged pre-tax (as a reduction on salary).

Question is about the lump sum payment and getting the right tax relief (I was a higher rate earner): where do I declare this on the tax return, especially as the pension company DID NOT add any tax relief. When I checked, they said I would have to do this on my SA with HMRC.  How do I include the right amount so HMRC know I haven't been given any tax relief on this?

Thanks

Have you confirmed that the total contributions are within your AA?
That is all employer contributions plus all employee contributions plus the £12k once grossed up.

Ignorant question - would the £12k need to be grossed up in a case where the pension scheme did not claim the tax relief?  So all that went into the scheme was £12k (not £15k).

Grumpy_chap

hugheskevi said:

Grumpy_chap said:

nolaughingmatter said:

Hello
A bit of a steer would be appreciated. I had (now now longer employed) a salary sacrifice work pension. Before leaving, I made a £12k lump sum payment into the scheme from my bank account. I also had my  bonus paid into the scheme, direct.

For my tax return, I understand I don't have to declare the pension contributions or the bonus payment as they are arranged pre-tax (as a reduction on salary).

Question is about the lump sum payment and getting the right tax relief (I was a higher rate earner): where do I declare this on the tax return, especially as the pension company DID NOT add any tax relief. When I checked, they said I would have to do this on my SA with HMRC.  How do I include the right amount so HMRC know I haven't been given any tax relief on this?

Thanks

Have you confirmed that the total contributions are within your AA?
That is all employer contributions plus all employee contributions plus the £12k once grossed up.

There is no grossing up of the £12k - it is a lump sum contribution without tax relief being applied at source. The member will reclaim all the relief due from HMRC and that will form part of the self-assessment outcome, with no further funds going to the pension provider.

Thank you, but doesn't the AA value still consider the "grossed up" amount?
Even if that tax relief does not get to the pension fund, the individual still gets the benefit.

hugheskevi

Grumpy_chap said:

hugheskevi said:

Grumpy_chap said:

nolaughingmatter said:

Hello
A bit of a steer would be appreciated. I had (now now longer employed) a salary sacrifice work pension. Before leaving, I made a £12k lump sum payment into the scheme from my bank account. I also had my  bonus paid into the scheme, direct.

For my tax return, I understand I don't have to declare the pension contributions or the bonus payment as they are arranged pre-tax (as a reduction on salary).

Question is about the lump sum payment and getting the right tax relief (I was a higher rate earner): where do I declare this on the tax return, especially as the pension company DID NOT add any tax relief. When I checked, they said I would have to do this on my SA with HMRC.  How do I include the right amount so HMRC know I haven't been given any tax relief on this?

Thanks

Have you confirmed that the total contributions are within your AA?
That is all employer contributions plus all employee contributions plus the £12k once grossed up.

There is no grossing up of the £12k - it is a lump sum contribution without tax relief being applied at source. The member will reclaim all the relief due from HMRC and that will form part of the self-assessment outcome, with no further funds going to the pension provider.

Thank you, but doesn't the AA value still consider the "grossed up" amount?
Even if that tax relief does not get to the pension fund, the individual still gets the benefit.

The member made a contribution of £12,000. They have £12,000 in their pension. They will benefit from £12,000 in the future (plus investment growth less charges). HMRC gives tax relief on £12,000. A value of £12,000 counts toward Annual Allowance.

They key thing is that £12,000 is in the pension.

It might be easiest to consider it alongside net pay. Under net pay arrangement, the employer would deduct £12,000 from taxable earnings, operate PAYE, deduct the appropriate income tax on salary, and send £12,000 to the pension provider that does not get grossed up as it is a net pay arrangement. Assuming the individual is a 40% taxpayer, that means they have benefitted from £4,800 of tax relief and have £12,000 in their penison.

Paying the £12,000 gross into a pension is exactly the same, except HMRC give back the £4,800 following self-assessment submission rather than it having previously not been deducted due to PAYE under net pay arrangement.

Dazed_and_C0nfused

nolaughingmatter said:

Oh, well that's not very tricky! But I'd read somewhere that it's more often than not that the pension companies add on 20% tax relief - and this is often 'assumed' by HMRC. How does HMRC know that this hasn't been applied?

Because of the box you are completing on the tax return.

Problems are seemingly occurring when people have written to HMRC or use the new pension relief service for those not completing a return.

So if you complete the return correctly you should not encounter those issues.  Although HMRC may check the return later by opening an enquiry into it and asking for evidence.  They have a year to do that from when you file the return.  But you may not be asked for anything.

https://www.litrg.org.uk/tax-nic/tax-checks-and-disputes/tax-checks-and-enquiries