Salary sacrifice vs deduction at source - query

ConfusedbyHMRC

cc123, thank you for that i think the penny may have dropped on my side but need to mull it over as for some reason everything HMRC do is counterintuitive to me

The key seems to be

"Yes the tax will be £8,000 higher, but remember you received pay that was £8,000 higher. The pension contributions deducted from your pay were £32,000 instead of £40,000"

This might be the bit I hadn't appreciated. Just not sure how to prove it to myself yet…

DRS1

https://forums.moneysavingexpert.com/discussion/comment/81954946#Comment_81954946

I think you only put something in your self assessment return if you have triggered the annual allowance charge. So as long as you have enough carry forward then nothing to report. But you should keep your calculations in case HMRC queries it.

You will of course need to report your personal pension contributions (grossed up for the basic rate relief claimed by the scheme) in the pension contributions bit of the tax return. You don't mention the salary sacrifice contributions.

cc123mm456

@PUGXS_22

- do your calculations suggest I should be receiving £34.5k back??

Your tax position is better by that approximately £34,500, but you will not receive it all as a tax refund.

£13,750 of that has been paid in to your SIPP by HMRC (or will be when the SIPP provider receives it from HMRC).

Then the reduction in your tax payable for the year is about £20,800, but exactly how much is refunded will depend on the PAYE tax paid through the year.

If you had already declared to HMRC that you plan to make additional pension contributions, your tax code may have been adjusted, resulting in less tax paid through PAYE.

Alternatively you may have other taxable income, and the tax was not collected through PAYE, like savings interest and dividends. Those would increase your Net Adjusted Income, and impact on the refund.

Just make sure that you have entered the gross pension contribution in the tax return box for pension relief at source. So if it was £55,000 net, you will need to enter £68,750 gross including the 25% tax relief.

PUGXS_22

https://forums.moneysavingexpert.com/discussion/comment/81955034#Comment_81955034

Thank you for coming back to me, yes have used the gross value of £68,750.

You are spot on - my PAYE tax paid was actually lower than you have calculated as I had declared that I would be making pension contributions in-year which then resulted in only paying £50,640 tax on £166,284 of taxable income.

Didn't want to complicate matters earlier so tried to adjust my numbers back to a core set of underlying values to avoid confusing the discussion.

This is what came back from HMRC in my SA - does this look right?

Pay from all employments	£165,107.00
plus benefits and expenses received	£1,176.00
minus allowable expenses	£1,293.00
Total from all employments	£164,990.00
Total income received	£164,990.00
minus Personal Allowance	£12,570.00
Total income on which tax is due	£152,420.00

Basic rate	£106,750.00	x 20%	£21,350.00
Higher rate	£45,670.00	x 40%	£18,268.00
Income Tax due after allowances and reliefs			£39,618.00
plus High Income Child Benefit Charge	£2,251.00
minus Tax deducted
From all employments, UK pensions and state benefits	£50,640.00
Total tax deducted	£50,640.00
Income Tax overpaid	£8,771.00

I think I am starting to get to the point where I can reconcile the £8,771 in my head but would welcome constructive critique of my thought process:

The tax due on my SA is £39,618, which vs what I should have paid of £60,903. Would on its own result in a tax over-payment of £21,285. That is what I calculate as should have been due back, all things being equal.

However, because I have only paid £50,640 as a result of declaring pension payments in advance and my tax code changing as a result, that over-payment is reduced by £10,263 to £11,022.

£11,022 refund is then partially offset by £2,251 HICBC that leaves me with the £8,771 refund.

Does this rationale sound correct? Keen to ensure I can reconcile in my head that the rebate is right.

cc123mm456

I think that you have understood everything correctly.

On that tax calculation, there will be a comment that states "Your basic rate limit has been increased by £xx,xxx for pension payments". Provided that this matches your gross SIPP contribution (including the 25% tax relief), then everything is correct.

It can be seen that you are receiving the £12,570 personal allowance (this would have been lost without the pension contribution). Also the 20% band has been extended, and a lower amount is in the 40% band, and nothing in the 45% additional rate band.

Just to be clear, you have received no savings interest at all in 2025/26 (excluding ISA's)? Note that even if non-ISA interest is below the £500 savings allowance, it still needs to be entered. It will be shown at 0% tax.

PUGXS_22

https://forums.moneysavingexpert.com/discussion/comment/81955315#Comment_81955315

thank you. No savings interest. All my savings are either within ISAs, investments or on my wife’s savings account (basic rate tax payer)

cc123mm456

@PUGXS_22

All my savings are either within ISAs, investments or on my wife’s savings account (basic rate tax payer)

For savings, yes that is the most tax efficient approach.

You mentioned you have investments. If those are all in a tax shelter (ISA or SIPP) that's fine, and there is nothing to report on the self-assessment.

If any investments are not in a tax shelter, there could be some investment income to report (dividends or interest). That can be possible even when you have not been paid any income. For accumulation funds the income would have been reinvested within the fund, but it must be reported on the self-assessment.

The investment provider will normally send a tax summary, but that can take up to about 2 months after the tax year end.