pension contributions and tax credits

mrs_angry

hi there hope someone can help!

i put in a renewal for tax credits, and can deduct any pension contributions my husband pays (gross) from our annual income, out of my husbands bank goes £248.99 every month. this totals £2987.88 per annum.

i posted on another thread a question about whether this was a gross figure, as that is what tax credits want, and i was told to ring the pension company, which hubby did.The pension company gave him these figures to deduct= £1749.60, £2007.60, £73.92. Now i used these figures and worked out this is what goes out his bank yearly, but grossed up! pension company said they would send out these figures on paper as proof for us to send to tax credits, but when their proof came through the figures are= £1098.96, £1113.36, £73.92 and it states, these are premiums paid,

now please forgive me if im wrong but their figures dont even add up to what goes out his bank each year, in fact there is a difference of £58.99 per month

i am totally confused as have told tax credits figure of 3831.00 which was deducted from our income for year 2007-2008, and have had my award based on this figure

can anyone make any sense of this because we sure cant, and seems like the pension company tell you one thing on the phone and another on paper!

so before we ring again would like some advice please, as tax credits do sometimes ask for proof of what he has paid into a personal pension.

kind regards in advance

meester

It's a bit hard to understand what you have written, the third paragraph is incomprehensible.

You should be able to work out the exact amount of tax credits due based on your income.

You need to know your husband's gross income before taxation/deductions, and also the total gross pension payment.Take the pension payment away from the gross income, and this gives you your income for tax credits purposes. Then work out your base tax credit amount (based on number of children, etc.) here http://www.hmrc.gov.uk/rates/taxcredits.htm. Then, for 2008-09, you need to take 39% of your income above £6,420 off that base tax credit amount. THis is what you should be receiving.

On the pension payments I believe that the pension company will treat any payment as net of basic rate tax, and reclaim that tax for you. So if you are paying £248.99 per month, that has had basic rate tax paid on it.

One thing is that the basic rate has just been cut, from 22% to 20%.

So £248.99 is LESS than it was before April 6th. £248.99/month is £311.24/month gross (divided by 80%). That means that your income is (annual salary) - (£3735 i.e. 12 payments of £311.24). Prior to April 6th, it would have been £319.22, so your husbands pension payment has fallen from £3830.62.

So if he gets £20k salary, the amount of tax credits is £20,000 - £3735 = £16,265. That means you have (16265 - 6420) * 39% = £3,839.55 taken off whatever your base tax credit allowance is.

jamesd

Your calculations are fine for last year. For this year you're also correct about the before tax relief figure and can divide that by 0.8 to get the gross figure for this year.

I don't see any way to get the figures that the pension company gave you. Possibly they are year to date contributions and include some contributions direct from his employer and paid gross, which would not be included in what you would use for the pension credits claim.

Both meester and I are assuming that your husband isn't a higher rate tax payer.

mrs_angry

Thanks for both your answers, sorry about the third paragraph, but i was in a rush!

basically i have taken the £3830.62 off of our yearly income!, i was then very confused by the pension company's figures.

Just one question though, if the pension company reclaims the tax my husband pays, does that mean we don't gross up his net payments? or am i being totally thick now!

kind regards