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bigduckontax
bigduckontax, Accountant
Category: Tax
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Experience:  FCCA FCMA CGMA ACIS
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I'm a higher rate tax payer, salary of £62477.64. Tax Code:

Customer Question

I'm a higher rate tax payer, salary of £62477.64.
Tax Code: 685T
Gross Income per month £5206.47.
PAYE Tax per month: £1324.25.
National Insurance Per month: £376.68.
I had been paying monthly a workplace pension contribution of £41.65.
I've recently requested an increase in personal contribution to my pension to 10% per month.
I expected on my pay slip to see a contribution of £520.65 however it turns out it is £416.52. (Basically 80% of the 10% I expected)
My query:
I expected that the pension contribution would be £520.65 and as such my PAYE Tax per month would reduce by a 40th of my 10% contribution, however the tax figure has remained the same. Is this correct?
In summary I expected my nett pay to reduce by 60% of my extra 9% pension contribution I was making (Approx. £282) however it has reduced by 80% of the extra 9% (Approx. £375). Can someone explain why this is the case?
Submitted: 11 months ago.
Category: Tax
Expert:  bigduckontax replied 11 months ago.

Hello, I am Keith, one of the experts on Just Answer, and happy to be able to help you with your question.

You wish to make a pension contribution of some GBP 520 per month. Your pay slip shows a deduction of GBP 417 odd. This is, as you have fathomed out, some 80% of your expectations. It is, however, correct. What has happened is that your employer has taken the net contribution and the pension fund will claim the 20% from HMRC. You have thus been given the tax relief at standard rare of tax through the medium of your emoluments. That is a perfectly normal treatment for pension contributions and most insurance companies operate the same system; you pay net, but the pension fund gets the gross amount.

As you are in a higher tax bracket there may be some adjustment to the tax position when you make your annual self assessment tax return.

I do hope that I have been able to clear the air for you.

bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3101
Experience: FCCA FCMA CGMA ACIS
bigduckontax and other Tax Specialists are ready to help you
Customer: replied 11 months ago.

Thanks Keith

That explains it very clearly.

You reference my self assessment tax return, I wouldn't normally do one of these. (In a previous life I did when I was self employed).

Will I be able to claim back the extra 20% of my contributions then?

Why doesn't the pension fund automatically claim the 40% from HMRC?

It all seems a bit of a convoluted system.

Do I need to wait until January 2017 to claim back pension contributions from Tax Year 2015/16?

Thanks

Expert:  bigduckontax replied 11 months ago.

Thank you for your support.

No, you will not be able to claim back the 20%, you already have it by paying the contributions net. What the annual self assessment may do is allow you more tax relief as you are in highter rates of tax. The pension fund cannot do this as it is not privvy to your individual taxation position. You will have to wait until you render your tax return. If there is a refund due HMRC usually respond with a payment relatively speedily. The quicker you get your return in the earlier you will receive the rebate.

I am delighted to have been of assistance.

Customer: replied 11 months ago.

With regards ***** *****:

"No, you will not be able to claim back the 20%, you already have it by paying the contributions net". This is true for the first 20% of the tax I would have paid had I not contributed to my pension but what about the further 20% that I would have paid?

I expected my pension contribution to be 60% my contribution and 40% tax relief. At the moment its 80%/20% with the tax man possibly providing me some tax relief in future.

Would it be worthwhile to speak directly with HMRC?

If I'm honest, I'm still a little confused.

Thanks

Expert:  bigduckontax replied 11 months ago.

The general system cannot be varied for individuals. The vast majority of taxpayers pay their pension contributions net and thus receive tax relief as they do so. To put a in special process for a relatively minor group of the populace would not be cost effectiove for the Revenue nor the pension companies.

You can speak to HMRC, but I suspect you will receive exactly the same answer.

Customer: replied 11 months ago.

Understood, thanks.

Expert:  bigduckontax replied 11 months ago.
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