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

nolaughingmatter

Thanks everyone, much appreciated. That's really clear. Yes, it was the thread suggested that got me thinking there was confusion with HMRC. And I appreciate the extra info about whether to gross up or not.

Grumpy_chap

hugheskevi said:

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.

OK -thank you.
I have to admit I find this aspect rather difficult to fully understand but I think you are saying:

1 - Pay £12k into the pension and this is grossed up by the fund claiming tax relief, so there is £15k in the pension.  £15k has cost the individual £12k.

OR

2 - Pay £12k into the pension and this is not grossed up, so there is tax relief available via SA of £2k.  £12k has cost the individual £10k.

Is that correct in the methodology?
(I think my sums might be erroneous?)

Dazed_and_C0nfused

Grumpy_chap said:

hugheskevi said:

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.

OK -thank you.
I have to admit I find this aspect rather difficult to fully understand but I think you are saying:

1 - Pay £12k into the pension and this is grossed up by the fund claiming tax relief, so there is £15k in the pension.  £15k has cost the individual £12k.

OR

2 - Pay £12k into the pension and this is not grossed up, so there is tax relief available via SA of £2k.  £12k has cost the individual £10k.

Is that correct in the methodology?
(I think my sums might be erroneous?)

1 is correct assuming no additional relief is due i.e. a Scottish taxpayer liable at the intermediate rate (or above).

2 is unlikely to be the outcome for most people.  The tax relief due will depend on what income (and types of income) are declared on the SA return.  It could save someone £2k.  But for someone else there might be zero tax saving.  And for someone with lots of children and falling into HICBC territory the tax saving could be way in excess of £2k.

hugheskevi

Grumpy_chap said:

hugheskevi said:

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.

OK -thank you.
I have to admit I find this aspect rather difficult to fully understand but I think you are saying:

1 - Pay £12k into the pension and this is grossed up by the fund claiming tax relief, so there is £15k in the pension.  £15k has cost the individual £12k.

OR

2 - Pay £12k into the pension and this is not grossed up, so there is tax relief available via SA of £2k.  £12k has cost the individual £10k.

Is that correct in the methodology?
(I think my sums might be erroneous?)

If the entire £12K contribution benefited from 20% tax relief, they would get £2,400 of tax relief via Self-Assessment. This would put them in the same position as a basic rate taxpayer making a net contribution of £9,600 into a Relief at Source scheme, which the scheme then claims £2,400 of basic rate relief to make a gross contribution of £12K.

I suspect that making a £12K lump sum contribution and doing self-assessment, the OP is at least a higher-rate taxpayer. Assuming the entire contribution benefits from tax relief at 40%, they would get £4,800 of tax relief via Self-Assessment due to not having received any other tax relief on their gross contribution of £12,000.