Tax credits / pension

[Unreasonable123]

Can I ask a quick question.

Iv read a few of you mention pensions ...

For example.

I earn £650 a month. I pay £250 a month into my pension.

Tax credit take the whole wage of £650 into account for my tax credits. Are they meant to be taking £400 into account so minus what I pay into my pension?

It’s a work based one. They take the % I ask for from my wages and then I get some tax relief.

I Pay no tax and NI.

It's only private pension contributions which are taken into account for tax credits, workplace pensions don't reduce your income for them, sorry.

If YOU are contributing to the pension then YOUR contributions (plus the tax relief) reduce your income for tax credit purposes.

This can be dealt with in one of two ways.

1. Your pension contribution is taken gross from your gross pay, reducing the amount shown on your P60 and the tax and NI you pay. You then tell tax credits your P60 income and ignore any pension contributions (as they are already accounted for in the reduced P60 figure).

1. Your pension contribution is taken net from your net pay after PAYE & NI are calculated. Your P60 figure is unaffected. The pension provider then reclaims the tax relief so that you get the full gross contribution into your pension. In this case the GROSS pension contribution (i.e. the amount you have paid plus the tax relief claimed back by the pension provider) needs to be deducted from your P60 figure to get your income for tax credit purposes.

Workplace pensions was work in either of the above ways, you need to check which yours is to know the answer to your question.

This is one of the ways in which universal credit is better than tax credits. Your payment is based on monthly salary after all deductions. We weren't entitled to any tax credits at all, but we get a small amount of universal credit even though DH earns more now than when we applied to TC