You’re offline. This is a read only version of the page.
HMRC, please can someone look in to this? If my calculations are incorrect, please tell me where and why. Kind regards,
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.
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.
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.