Self assessment & pension contributions

[SAconfusion]

Afternoon all

i am trying to complete my SA and am confused. I’m in receipt of an occupational pension due to ill health but returned to work last year and earned 30k, pushing me into the higher rate bracket.

I opened a SIPP and paid in 15k. I thought I would get 20% knocked off my tax bill, i.e. 3k and the pension provider would reclaim another 20% and add it to the pot.

The SA is now saying to divide the 15k by 80 and multiply by 100 i.e £18750 and use the figure.

Can anyone explain what that’s all about?

Thank you.

The figures you put on your self assessment are supposed to be the gross, ie before any tax deduction / relief, amount. So assuming that your SIPP provider claims tax relief for you at the basic rate then you must declare the gross amount.

The gross amount is worked out as you say (for as long as the basic rate is 20%) - divide by 80 and multiply by 100, which is £18,750. 20% of £18,750 is £3,750.

Multiplying by 1.2 is not the same - that gets you to a gross figure of £18,000. But a gross of £18k taxed at 20% leaves you with £14,400 not £15,000

Assuming 40% tax relief then you will also get a further £3,750 of tax relief via your tax return, so a gross addition to your pension of £18,750 has a cash cost of £11,250 (the £15,000 you put in less the £3,750 you get back via your self assessment). Which you can check, because 60% of £18,750 is £11,250

Using the ‘multiply by 1.2’ you’d get £18k gross for a cash cost of £12k, which is not only wrong but a worse deal!

Thank you for your answer @Tryingtokeepgoing but i think I need an accountant as am more confused.

I watched 26.5k as paye.

I received 38k occupational pension.

I paid 15k into a SIPP. I made no other pensions contributions. This is likely a one off as I am no longer working.

What figure for the pension should I enter into the SA?

thank you so much.

You should enter the total amount of your personal contributions for the tax year, plus the basic rate tax relief added by your pension provider. It’s as @Tryingtokeepgoing says

read this
https://getpenfold.com/news/self-assessment-tax-return-pension-contributions

So I just put pensions contributions down as 18750 on the SA then the pension provider will reclaim the rest and add it to the pension pot?

thank you both.

no. Your pension doesn’t get any additional tax relief, you personally get the extra tax relief by your basic rate band increasing by the gross pension contribution amount. You will pay less tax.

but yes you’re correct in what you put in your tax return.

Exactly as @Choux says :)

If those were your only sources of income and you didn’t have any interest, capital gains, dividend income or other pension contributions then your total income was £64,500. Minus £18,750 pension contribution leaves a taxable income of £45,750.

Assuming a standard tax code then the tax works out as:

£12,570 @ 0%
£45,750 - £18,750 at 20%, which is £6,636
Nothing taxed at 40% as you are below the threshold

But you will have paid
£12,570 at 0%
£50,270 - £12,570 at 20%, which is £7,540
£64,500 - £50,270 at 40%, which is £5,692
Total tax paid of £13,232

So you are due a refund of £6,596, less the £3,750 tax relief already credited to your SIPP, which is £2,846. Less than the £3,750 credited to your SIPP as not all of it gets relief at 40% because the contribution takes you below the 40% threshold by about £5k.

When you complete the SA online you’ll be asked where you want any refund to be sent, and can enter your bank details. Once your self assessment refund has been processed you should get the money in a few weeks…but in my experience it can take much longer if this is a one off than if you do it each year!

So you get £18,750 added to your pension for £18,750 - £3,750 - £2,846, which is £12,154. As a check, you paid £15,000 cash into the account but that should have cost you £12,154. One minus the other is £2,846, which is the tax refund due.

@Tryingtokeepgoing can I send you a message please?

thank you.

Yes. You paid the pension provider £15k. They will then claim the other £3,750 from the gov and add it to your pot.

per this gov page:

You get relief at source in all personal and stakeholder pensions, and some workplace pensions.
Before paying into a scheme, you need to agree to certain conditions about your contributions (‘make declarations’). Your pension provider will tell you what these are.
You also need to give your pension provider your:
full name and address
date of birth
National Insurance number
employment status - or tell them if you’re retired, a full time student, a carer or aged under 16
https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

Yes of course :)