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Sam, Accountant
Category: Tax
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Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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My FY 15 salary including bonus will be 122k. In order to retain

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My FY 15 salary including bonus will be 122k. In order to retain my personal allowance, do I need to contribute 22k net into pension fund or only 18k which would be grossed up to around 22k because of basic tax relief claimed by pension provider?

I can then claim additional 20% back on that 22k back as part of Self assessment?

Also, I seem to have wrongly claimed 20% relief only on the net amount in previous years rather than gross amount. How do I claim the additional difference from HMRC?


Thanks for your question, I am Sam and I am one of the UK tax experts here on Just Answer.

It will be the grossed up amount that HMRC would use to calculate your final income position.

So you are correct in stating that to reduce your gross income from £122,000 to £100,000 (so as not to lose your personal allowances) you would need to make £18,000 pension contribution which would amount to £22,500 grossed up.

Then, as long as you have made this contribution yourself, to a private pension or its an employer pension but you have made this contribution yourself, rather than the employer deduct it from your pay (prior to taxation) you would show this contribution through your self assessment - and receive a tax refund of 20% (40% due less 20% already credited against the contribution itself by the pension scheme = 20% further relief due) which would result in a tax refund.

And for earlier years then you would need to amend the tax returns - if you have filed these online using HMRCs free online services, you can amend these yourself, but if you have used a accountant or filed a paper return then you will need to write to HMRC asking for the amendment to be made.


Customer: replied 3 years ago.

Thanks for a very concise answer Sam.


I had the same understanding from various forums but wasn't convinced.


This is really like having the cake and eating it too!


In my mind, if I pay 18k in pension fund, I should really be able to reduce only that amount from my gross pay of 122k rather than reducing the grossed up pension amount?


I have filed tax returns using HMRC website, so will go online to amend and hopefully get some money back :)



Hi Raj



Thanks for your response Its nice (on the odd occasion) that you can have you cake and eat it too !



But its basically allowing the recognition that as you suffer 40% any contributions you make should also attract 40% relief (this applies to gift aid too) But on the other hand any incomes such as dividends or interest are then subject to a further charge - so its swings and roundabouts!




The Gross Income and net income calculation (which operates the upping and reducing of the basic rate band) has always used the gross figures, as its the true recognition of the position See link here from HMRC website


which specifically states Step Two - take away Gift Aid and pension contributions


Your net income is then reduced by the 'grossed up' amount - the amount you contribute plus the basic rate tax - of any:

• Gift Aid contributions

• pension contributions where your pension provider has already given you basic rate tax relief



And the online tax return also specifies to add in the pension contribution AND the basic rate tax, so you can amend these



Thanks Sam

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