Higher tax rate - pension tax relief question

[ThunderCrow]

I am employed and pay into my pension from my salary - my employer contributes also.

I earn £60,000 and pay 8% in to a pension, which should be £400 per month. However, only £320 per month is actually taken and I understand that's because the remaining 20% is contributed from the government as a way of returning 20% tax paid on my salary.

However, someone mentioned doing their tax return before end of January so they could claim back the other 20% as they were a higher rate tax payer (i.e. 40% tax is paid on the upper portion of their earnings).

I've looked online and am struggling a bit to understand whether this would apply to me. I always assumed it was just the basic tax rate that was applied as relief on pension conts but now am not sure.

Should I have been claiming back an extra 20% of my pension contributions all this time? Is this a commonly known thing that's just passed me by and everyone who earns enough to pay higher tax just does this without saying anything?

The person I overheard was a stranger waiting outside our Dr, so I didn't feel it right to start quizzing them on their tax business

Normally a workplace pension scheme will apply tax relief at the full rate applicable based on your PAYE* whereas SIPPS for example only claim 20% and you have to apply for the rest.

*this is for regular contributions. For lump sum AVCS I've had to apply for all of the tax not just the higher rate portion.

Best thing to do would be to check with your scheme.

However

Oops - stray 'however'. I wasnt teasing.

Thanks @Palavah - I'll check later today. If 40% relief should be applied then I don't think it is being.

I can see £320 as a deduction on my wage slip and £400 as a credit on my pension. The difference only being 20% there. Unless I am mad. Which is quite possible

@Palavah

Oops - stray 'however'. I wasnt teasing.

Ha!

I don't know how many years you can go back, possibly indefinitely, but I think you could have a nice little lump sum bonus heading your way

Is the £320 just your contribution?

And shown as a deduction from net pay rather than reducing your gross salary?
If yes then you need to get the tax relief via your tax return. Does not go into your pension, you get that back as cash.

(I am assuming you see your employers contribution separately too in your pension)

That's correct @burnoutbabe

I see £320 listed as a deduction on my payslip. I see £400 listed as the corresponding credit on my pension and then see another £400 credit as my employer's contribution to my pension.

If that is all correct, @AuntyBumBumI think I can claim back 4 years worth - as luck would have it, before then my employment was different and abroad so tax matters handled by E&Y, so I would not go back that fair. But 4 years worth is almost £4k which would be a nice way to start any year, assuming it's correct :)

I am mostly just baffled this has never cropped up until now

Your pension contributions effectively reduce your taxable income, so in effect you get your marginal rate back wether that’s 20%, 40%, 60%, 45% or higher in certain circumstances so long as you are not affected by breaching annual or lifetime allowances.

You will need to check whether the deduction is before or after tax.

There are good online calculators which will show what your tax deducted should be with and without the pension contribution

@AuntyBumBum

I don't know how many years you can go back, possibly indefinitely, but I think you could have a nice little lump sum bonus heading your way

Absolutely not indefinitely - imagine HMRC opening themselves up to that level of liability!

@ThunderCrow it is fairly well known if you read anything about pensions, but of course many people don’t! I don’t use my tax return to claim mine - instead I had HMRC adjust my tax code to allow for it, because I already know exactly how much I’m going to contribute. It just took a phone call to them. No good for the retrospective claim, but worth considering for the future.

Thanks @Cocomarine - so it IS one of the adulting things that everyone else knows but me

Ah well, I know now.

I can claim last year's via a self-assessment tax return. Wonder how I claim previous years? I may write to HMRC and throw myself on their mercy!

Good to know about the future tax code. I'll look at that too, as I also know how much I will be paying. Salary due to go up in April, so may wait until then....

@Cocomarine
Absolutely not indefinitely - imagine HMRC opening themselves up to that level of liability!

I see your point, but is this not, erm asymmetrical? @ThunderCrow says they'll allow her to go back four years. I bet if the boot was on the other foot and HMRC found out that she'd been claiming too much tax relief they'd reopen more than four years.

(Although I actually don't know, and this is veering off-topic, not least because she doesn't need to go back more than four!)

@AuntyBumBum HMRC practice is actually pretty fair, in my opinion.
As a private individual, you can go back 4 years to correct your mistake.
General rule of thumb for HMRC investigation is 20 years for what appears to be deliberate evasion, 6 years for negligence and 4 years for innocent mistake.

It’s a balance of public and private interest.
It’s not in the interests of the public in general that HMRC should be tied up in 20 year old back claims, against a multitude of changes of legislation and percentages and incomplete records. That all costs the tax payer. I don’t want to pay for Mr X to claim £20 from 1994 because he forgot he’d bought some stationery that was deductible 😉 I think it’s right that the onus - and cost -is on the individual, not the state.

Whereas for tax evasion - absolutely I think HMRC should go after it, and I think that it is in the public interest that people know they can get away with all but the last 4 years worth of it!

I think the system is fair.

@tigger1001

You will need to check whether the deduction is before or after tax.

There are good online calculators which will show what your tax deducted should be with and without the pension contribution

Thanks for this @tigger1001

Having now compared recent payslips to some I received some years back from a previous employer I (think I) can see the difference:

• In previous years they were before tax via Salary Sacrifice. This means I think I received the full tax relief on these. Because it reduced my income before tax was calculated.

• In my current employement it is after tax and not listed as salary sacrifice. So I pay tax, then pay 80% of the pension contributions I expect to, and the government is adding the extra 20% of the basic rate of tax. So that suggests I am paying too much tax because my pension conts are not being taken out of my marginal rate (thanks for that @Asdf12345! your post made it clearer to me WHY the 40% is the right amount).

So, I think I may have the best case scenario here wherein I haven't missed the boat for long gone by years because that employer already used the 40% relief. And I can claim for the last 4 years where 20% was used, and look forward to a cheque in the post. And I can get my tax code changed and my take home pay will go up a little bit as a result...

@Palavah

Normally a workplace pension scheme will apply tax relief at the full rate applicable based on your PAYE* whereas SIPPS for example only claim 20% and you have to apply for the rest.

*this is for regular contributions. For lump sum AVCS I've had to apply for all of the tax not just the higher rate portion.

Best thing to do would be to check with your scheme.

However

Not quite true, only if the operate salary sacrifice.

Other than that 20% relief at source provided by the pension provider and the additonal 20 / 25% claimed via self assessments

[quote Cocomarine]@AuntyBumBum HMRC practice is actually pretty fair, in my opinion.
As a private individual, you can go back 4 years to correct your mistake.
General rule of thumb for HMRC investigation is 20 years for what appears to be deliberate evasion, 6 years for negligence and 4 years for innocent mistake.

It’s a balance of public and private interest.
It’s not in the interests of the public in general that HMRC should be tied up in 20 year old back claims, against a multitude of changes of legislation and percentages and incomplete records. That all costs the tax payer. I don’t want to pay for Mr X to claim £20 from 1994 because he forgot he’d bought some stationery that was deductible 😉 I think it’s right that the onus - and cost -is on the individual, not the state.

Whereas for tax evasion - absolutely I think HMRC should go after it, and I think that it is in the public interest that people know they can get away with all but the last 4 years worth of it!

I think the system is fair.[/quote]
Thank you @Cocomarine, that does sound reasonable, and I am now better informed! And enjoy your windfall @ThunderCrow 🤑

I’m pretty sure I got this sorted out for a prior tax year just by calling HMRC so would do that first before filling in a tax return! At the very least you can get it resolved for the current tax year.

You should file an online tax return and there is example in HMRC filing system under pension part. The additional tax relief can only be returned if you file your tax return, and a gym any people don’t know about it. I do it for my husband every year as he had no clue! From memory you can claim back as far as 3 or 4 years in the past. But not all of your contributions are eligible for the additional tax relief, it’s only the part that’s taxed at high rate, I.e. £10k if you earn £60k. If you’ve never done it before it may take you a couple of weeks to get everything set up, so better hurry up for this year!