One-off pension contribution paid from bank in Self Assessment

Hi
That is correct.

Hi , my original post is still shown as pending moderator review! Would appreciate if this could be processed so I can share with my tax consultant as well

Hello , I have run this scenario through the HMRC Tax calculation summary notes (HMRC 12/22 SA110 Notes 2022-23) , the template which helps calculate tax due step by step. This document does not seem to align with the HMRC advice provided above. I feel it is because of the below 2 points : - tax due is calculated on “Total Taxable Income”(£131k) , and not on “Net Adjusted Income”(£124750) - Also , the calculation increases my basic rate limit by the one off pension contribution (£6250), to £43950 (in the document as S3 + A119). This does not make sense as the pension contribution should be tax free, but the calculation is taxing 20% on the amount paid into pension - isn’t this double taxing ? Based on the above, can we check if the document is correctly calculating tax, for this scenario of one-off pension contributions paid into work place pension ( from after-tax net pay ), from my bank. (Note: The £6250 includes the 20% topped up by pension provider)

Hi, 
 

If your basic rate threshold was not extended by £6250, then your income at the higher rate would be £6250 more.  Instead of paying tax at 40% on £6250 = £2500, your pension payment is taxed on £6250 at 20% = £1250.  This means you are are only paying £1250 tax and not £2500, giving £1250 tax relief, to go with the £1250 tax paid that the pension provider will claim.  This gives a total tax relief of £2500, the equivalent of £3250 @ 40%.  There is no double taxation arising in this calclation . Thank you.

Thanks for your reply & explanation. So based on the above example , putting £5000 of post-tax net pay salary from bank, into pension got total £2500 tax relief. (£1250 via self assessment and £1250 claimed by pension provider) However £5000 pre-tax (@ 40%) would be (£5000x10/6) = £8333 gross. If I had paid £8333 via the ‘Net pay’ method into workplace pension , my pension would have gone up £8333 , and £0 tax on this amount . But because I had received this amount into bank , paying £5000 results in my pension going up by £6250, and get £1250 in self assessment relief, totalling to £7500, which is lesser than £8333. So that means I didn’t get 100% tax relief by paying into pension? (my assumption is that we get 100% relief for payments into pension)

Hi,

You will still get full relief under net pay as this is taken from your pay before any tax is calcualted. As a higher rate taxpayer, this then reduces your amount of taxable income at the higher rate so means less tax is paid by you. You have still received the full relief.

Thank you.

Thanks , perhaps my question wasn’t clear. No doubt about the net pay relief. I was referring to the scenario where the salary was paid and then put back into workplace pension from bank. This is not getting the full relief >>> “But because I had received this amount into bank , paying £5000 results in my pension going up by £6250, and get £1250 in self assessment relief, totalling to £7500, which is lesser than £8333. So that means I didn’t get 100% tax relief by paying into pension? (my assumption is that we get 100% relief for payments into pension)”

Hi Kevinrv,
Where you pay £5000 into your pension scheme, after your income has been taxed at 40%.
Your pension provider will claim 20% on the £5000 payment, which is £1250 (£6250 * 80/100 = £5000).
In your tax return, you are claiming the remainder of the tax relief, so you enter the gross figure paid so far £6250.
Your basic rate band will be extended by this amount so that £6250 is only taxed at 20% and not 40%, giving a further £1250 tax relief.
The difference is that you will only have paid £6250 into your pension scheme, with the other £1250 tax relief used to reduce your tax liability or repaid directly to you.
The other person has had to pay £8333 into their pension, to claim 40% tax relief.
Thank you. 

Hi, I hope you mind me asking a related question. I too made a one-off pension contribution (from post-tax net pay salary) paid from my bank account but the issue I have is I do not know how or where to enter the added pension payment in my tax return. Can you tell me how that is done? Also do I need to provide any evidence of this in my tax return.g. confirmation letter from my workplace pension provider? I have calculated my net income in the 'Tailor your return section' and have answered 'no' to the 'Was your Adjusted Net Income over £50,000?' question as my one-off pension contribution took my below £50000. The calculation does not indicate that I have overpaid tax but this is not surprising as I do not know where to enter the one off pension contribution amount. I recall on the previous year's online tax return form there was a box to enter the one off pension contribution. Regards, Simon

Hi Simon,
The one off payment to your pension scheme would be entered in box 1 of page TR4 of your Self Assessment tax return (SA100) which is for payments to a registered pension scheme, where basic rate tax will relief will be claimed by your pension provider.
Your pension provider will be able to confirm if they claimed 20% tax relief on your behalf.
Thank you. 

 

Thanks, just to be clear, do I answer yes to the 'Did you make contributions towards a personal pension or retirement annuity?' question in the 'Tailor your return' section? I don't think the 20% tax relief has been claimed on my behalf as I don't see it on my pension statement. I will contact the pension provider to confirm though. If the tax relief hasn't been claimed do I add the one off payment amount to a different box on page TR 4?

Hi Simon,

Yes, you answer that question and if no tax relief has already been applied, one of the new boxes that then open up has that option and you will put the amount in there.

Thank you

Hi, can I please clarify - taking the above example let's assume the person's income for the year is £108,332. This person wishes to reduce their income/earnings for the year under 100k to avoid the 60% tax trap and loss of benefits. In order to do that and make the income for the year £99,999, if the person paid into their workplace pension before tax (salary sacrifice), they elect to contribute £8,333 extra through whatever extra % of their salary that is. Job done. If they have already been paid £108,332 and wish to reduce income under 100,000 by contributing to a private pension, they must contribute £6,666 (£8500 -20%) from post tax salary NOT £5,000. That's correct? If correct, the person then claims 40% relief through (a) 25% bump on the £6,666 by pension provider, and (b) 20% text credit back on self assessment on £8,333 so an additional £1,666.60, added to the £1666.60 from the pension provider, totals £3,333.20. Is that also right?

Also, a follow up question - if the tax relief is given by extending the basic rate band, in the scenario I outline, does the additional pension contribution still have the effect of reducing the income for the year to £99,999 and hence the full tax free allowance remains in place? Even though the person would have received £108,332 of actual income? many thanks

Hi David Spencer

We cannot comment on scenarios in this forum or provide financial advice.  
Payments made to a pension scheme are deducted when calculating the net relevant earnings.  Please have a look at PTM044220 - Contributions: tax relief for members: methods: relief at source for more information.

Thank you