Working out Gross Contribution to Pension from Net Figure

ParanoidPlanner

Wondering if anyone can help - How do you work out a Gross contribution to a pension from the net personal contribution to take account of the tax relif.

I take it you can do this on a calculator? if so - How? - Maths was never my strong point!!!

many thanks in advance

dunstonh

if you are a basic rate taxpayer then divide the net contribution by 80% (divide by 80 then multiply by 100). So, if your direct debit is £100pm you divide that by 80 then multiply that answer by 100.

You can also multiply the net figure by 1.25 which is quicker

Debt_Free_Chick

dunstonh wrote: »

if you are a basic rate taxpayer then divide the net contribution by 80% (divide by 80 then multiply by 100). So, if your direct debit is £100pm you divide that by 80 then multiply that answer by 100.

You can also multiply the net figure by 1.25 which is quicker

Absolutely spot on for contributions paid after 6 April, but divide by [strike]75%[/strike] 78% (as the basic rate of tax was 22% and 100-22 is 78, not 75 as I originally posted*) for contributions paid before then.

Not clear whether the OP is looking at this year's or last year's contributions.

* Thanks to YorshireBoy in post #4 for correcting my mistake

YorkshireBoy

Debt_Free_Chick wrote: »

Absolutely spot on for contributions paid after 6 April, but divide by 75% for contributions paid before then.

Shouldn't that be 78%?

bigbloke45

From 6 April this year you will pay pensions contributions net of basic rate tax, at 20%. This means is that every £1 you contribute only costs you 80p. The calculation to work this out is 1*.8. So, if you gross contribution is, say £142.30, then your net contribution will be £142.30*.8 = £113.84.

Ok, I know, looks like Mickey Mouse stuff but, the reverse of these calculations are called "grossing up" and this is what you are searching for!

All you have to do is the reverse of what you've done to find the net contribution after tax. So, for each £1 that you have actually paid in pension contribution, you need to DIVIDE by 0.8 (since you multiplied by 0.8 to start with and this is reversing that calculation).

Thus, £1 divided by 0.8 is £1.25. Just as dunstonh says, you could equally multiply by by 1.25 to get the same result.

But the beauty of getting your head around "grossing up" is that it allows you do so much more. For example, VAT. If you buy something for £10.00, what's the VAT you've paid? Well, you paid 17.5% VAT, so that's whatever the cost before VAT was multplied by 1.175. Easy Peasy, simply divide £10.00 by 1.175 to find the what you paid before VAT; answer, £8.51. So the VAT paid is £10.00 minus £8.51 i.e. £1.49

If you are a higher rate taxpayer you will need to reclaim the rest of your tax relief through your tax return.

I hope this helps you and good luck with your endeavours!

Debt_Free_Chick

YorkshireBoy wrote: »

Shouldn't that be 78%?

Yes, I'm sorry .... not sure what I was thinking of

John_Gray

Sorry to resurrect this post after three years, but the same question applies!
If I pay £1000 into my pension fund for the tax year 2010-2011, is the 'grossing up' multiplier still 1.25, so that the grossed-up contribution is £1250?

Thanks!

CLAPTON

John_Gray wrote: »

Sorry to resurrect this post after three years, but the same question applies!
If I pay £1000 into my pension fund for the tax year 2010-2011, is the 'grossing up' multiplier still 1.25, so that the grossed-up contribution is £1250?

Thanks!

the standard tax rate is 20% so yes to get the grossed up pension value you multiply by 1.25
and yes if you put 1000 in from your salary after tax then it would be grossed up to 1,250