Skip to main content

This is a new service – your feedback will help us to improve it.

Posted Fri, 26 Aug 2022 15:26:48 GMT by Adam
Hello, I'm hoping someone can help me because I believe I may have found an issue with how tax relief is calculated and paid by HMRC when when a higher rate tax payer pays in to a pension which uses relief at source. That is, pension contributions are made after tax has been deducted. I found a thread from last year which describes a similar issue here: https://community.hmrc.gov.uk/customerforums/sa/a13fef08-8d44-ec11-a3ee-00155d9c6b71 My explanation of the problem below uses the example provided on the following page of the Pensions Tax Manual which hopefully will make my explanation of the problem more clear: https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044220#Higher In the example a post-tax contribution of £80 is made to the pension. Through relief at source an additional £20 is added to the pension. This is based on the assumption that the contribution was taxed at 20%. The example then states that the tax office will provide another £20 of relief. This doesn't make sense as both the RAS and the tax relief from the tax office calculate the relief based on the assumption that the contribution was taxed at 20% which it was not. The £80 contribution was taxed at 40% so the pre-tax amount is £133.33. If RAS gives £20 and the tax office gives another £20 then £13.33 tax has still been paid on this contribution. I'm asking for clarification/investigation in to this because this is the exact problem I'm currently facing and I believe it might be a miscalculation somewhere that should be addressed. Thanks for your time. Kind regards, Adam
Posted Wed, 31 Aug 2022 14:42:13 GMT by HMRC Admin 10
Hi
If you search for Pension Tax Relief calculator online, you can view how the relief is calculated based on the amount that went into the pension. From the example, in order to contribute £100, £80 would be paid into the pension, £20 would be claimed back by the pension provider and a further £20 would be claimed through the higher-rate tax relief.
This means that in order to receive £100 into the pension, it would overall cost £60.
Thankyou.
Regards.
Posted Wed, 31 Aug 2022 16:10:10 GMT by Adam
Hello, Thanks for the response but I think you may have read my post too quickly. I've consulted the Pensions Tax Manual but unfortunately the calculation it describes means that it doesn't provide 100% tax relief on pension contributions that were taxed at 40%. Using the example you provided. If I wanted to put £100 in my pension, I know that relief at source will add 20% so I contribute £80. £80 goes in to my pension and the pension provider claims 20% relief at source so my pension pot is now £100. I contact HMRC for the additional higher rate tax relief and they give me a further £20 back. So my contribution (£80) plus relief at source (£20) and the additional relief (£20) comes to £120. However, the £80 I paid in was taxed at 40%, which means the pre-tax cost of that £80 was £133.33. So the tax relief is short £13.33. Both the relief at source and the additional tax relief provided by HMRC calculate the relief based on the money originally being taxed at 20% which means the resulting amount is incorrect. In this situation the additional tax relief due should be the tax paid on the original amount ((£80 / 60) * 40 = £53.33) less the relief at source (£20) which is £33.33. Kind regards, Adam
Posted Thu, 01 Sep 2022 17:02:29 GMT by HMRC Admin 20
Hi Adam,

The amount that should be in the pension is the contribution, plus the amount deducted at the basic rate of tax.
The remaining 20% would be paid back from HMRC, for example, a contribution of £133.33 would be as follows
- £106.66 paid into the pension, £26.27 relief added and then £26.67 paid back from HMRC.
This would be a total cost of your pension contribution of £80.
If you have a query regarding your specific contributions, please write to use enclosing evidence of the contribution
and the relief claimed by the pension provider, and the amount that was deducted from your wage.

Income Tax: general enquiries

Thank you.
Posted Thu, 01 Sep 2022 17:54:02 GMT by Bella Boo
I'm not hmrc but I think I might be able to help . Your contribution to the pension isn't £120. It's £100. The extra £20 is given to you, not deducted from you. This is why the hmrc admin said the £100 contribution costs you £60. It was £60 you paid tax on, not £80. It's only the fact the higher rate element is refunded by hmrc that causes confusion. In essence, it costs you £60, £40 in tax relief makes it up to £100. Its just that you initially pay £20 of the tax relief that's added to the pension and then have it refunded by hmrc later. Hope that helps, sorry if it doesn't!
Posted Fri, 02 Sep 2022 12:49:24 GMT by Adam
Thankyou both for the replies. I think the talk around how much is put in to the pension is causing us to miss the point I'm trying to make so I'm going to try and explain without considering what ends up in the pension (although it will be evident). I put £80 in to my pension, I already paid 40% tax on this money so the pre-tax amount was £133.33. My pension provider receives the £80 and assumes I pay tax at the basic rate of 20% so they calculate that the pre-tax amount was £100. Through relief at source, £20 tax is recovered at this point. I contact HMRC about the additional tax relief and they do the same calculation the pension provider did and give me back £20. I have still paid £13.33 tax on my pension contributions which is incorrect. HMRC should have given me back £33.33. Kind regards, Adam
Posted Wed, 07 Sep 2022 09:14:12 GMT by Adam
HMRC, please can someone look in to this? If my calculations are incorrect, please tell me where and why. Kind regards, 
Posted Wed, 07 Sep 2022 14:10:30 GMT by HMRC Admin 20
Hi Adam,

If you believe you have been credited an incorrect amount, please write to us with evidence of the amount paid into the pension, and the amount claimed by the provider. You can also include that the guidance you are viewing does not appear correct from your calculation.
Income Tax: general enquiries

Thank you.

You must be signed in to post in this forum.