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Posted Mon, 29 Jan 2024 22:54:41 GMT by
Hi there, I am trying to complete my self-assessment for 2022-23 and struggling to understand the tax calculations. Hopefully an easy one for the experts to clarify. Have rounded the numbers below to keep it simple. Gross income (single employer) - £107,500 (as in P60) Final Tax code - 1545L (as in P60 and HMRC personal account details for 2022-23) Pension Contribution to Employer Scheme - £3000 (actual deduction £1,800 as 40% relief applied by Employer) Private Pension Contribution - £4,000 (actual payment £3,200 as 20% basic tax relief applied by Pension Provider) So the adjusted net income should be £100,000 and the personal allowance should not be reduced below £12,570. However, when filling the self assessment details online, the tool is reducing the personal allowance based using the standard tax code of 1257 and not the 1545L. This means my pension contribution to the Employer scheme are ignored when calculating the adjusted net income leading to significant reduction in the personal allowance below £12,570. Just to add, the private pension contribution are picked correctly in personal allowance and tax calculations. I have tried to look at various fields in the self assessment tool but can't figure out how to show the employer scheme pension contribution so that personal allowance calculations are done correctly. Or have I got it wrong in my head and the tool is working fine. any advise on how to resolve this would be highly appreciated. Thanks.
Posted Tue, 30 Jan 2024 21:52:00 GMT by maxb
There's quite a lot to unpack here... First, a tax code of 1545L doesn't mean you have a larger Personal Allowance - you still have a £12570 Personal Allowance (until you lose some due to the tapering above £100k) - the tax code just means that HMRC estimated that you would have other reasons besides the Personal Allowance to pay less tax - for example if you have a history of making personal pension contributions, you might be given a tax code which assumes you will continue to do so, and releases some of that tax relief during PAYE. When you get to the end of the year, though, your tax code becomes mostly irrelevant (unless it is also being used to deal with historic under/overpayment from previous tax years), and Self Assessment recalculates everything based on actual values, rather than estimates. Next, I'm not an expert, but I've never heard of a pension arrangement where the employer applied 40% relief. I have heard of "salary sacrifice" where the employer puts the money on your pension without it having been taxed at all in the first place, which would have roughly the same effect for a 40% taxpayer, but in this arrangement, the amount is never included in your P60 gross pay in the first place. Could this be that? You might need to talk to your employer to figure out exactly what the arrangement is. Lastly, even if you were able to able to exclude both the £3000 and the £4000 from your overall income, you'd still be £500 over £100k so there would be some Personal Allowance reduction still.
Posted Thu, 01 Feb 2024 08:01:56 GMT by
Dear Max Thanks for your response. Much Appreciated. I agree that personal allowance remains the same irrespective of the higher tax code initially applied. My tax code for 2021-22 was also 1545L but final self assessment calculations were based on £12,570 which was fine as I had already received 40% relief on my pension contribution. I always believed the initial tax code was higher due to my pension contribution to Employer scheme as I never had made contributions to any private pension in past. 2022-23 was the first time ever I have invested in a private pension as I knew my gross income will breach £100k threshold and didn't want to reduce personal allowance below £12,570. Issue has arisen this year only due to income breaching £100k mark and my Employer scheme pension contribution are not getting considered in calculating the adjusted net income. Please ignore the gross income of £107,500 which was a typo on my part as when I was rounding off numbers. It should read £107,000. I have checked my payslip and it is 40% relief applied to my pension contribution. As you have said, I will try to contact my HR to understand if it a 'salary sacrifice' kind of scheme in which case the gross income in P60 should not include pension contribution. I tried to deduct the 4% pension contribution from the gross income in the SA tool. This reinstates the personal allowance back to £12,570 but the 40% relief (£1,200) I have already received through my employer doesn't get considered. The tool hence calculates that I have overpaid tax by this amount which I don't think is correct either. Any more thoughts on this would be very helpful. Thanks.
Posted Mon, 05 Feb 2024 13:53:28 GMT by HMRC Admin 19

As your tax code was 1545L there would have been an additional allowance in your code that you will need to check and claim on the tax return if it still applied in that tax year.

On the tax return you would only claim your employee contribution as long as the contributions were from your net wage. Once submitted if you allow 3 working days to process to HMRC records and then contact our Self Assessment team so we can review the calculation.

Self Assessment: general enquiries

Thank you.

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