Tax return / p60 and pension
Discussion
Hi, I'm employed and my employer give me 8% pension payment per month and on top of that I pay around 4% of my salary into pension. I noticed that my p60 the gross taxable pay figure is BEFORE my own 4% payment into salary, I've been put the P60 figure on my tax return but should I have been entering the 4% amount I pay some where else in the return so I don't pay tax on that amount ?
cheers
cheers
PostHeads123 said:
Hi, I'm employed and my employer give me 8% pension payment per month and on top of that I pay around 4% of my salary into pension. I noticed that my p60 the gross taxable pay figure is BEFORE my own 4% payment into salary, I've been put the P60 figure on my tax return but should I have been entering the 4% amount I pay some where else in the return so I don't pay tax on that amount ?
cheers
No. Your contribution is deducted from gross income in order to provide you with the appropriate tax relief.cheers
Hyena said:
PostHeads123 said:
Hi, I'm employed and my employer give me 8% pension payment per month and on top of that I pay around 4% of my salary into pension. I noticed that my p60 the gross taxable pay figure is BEFORE my own 4% payment into salary, I've been put the P60 figure on my tax return but should I have been entering the 4% amount I pay some where else in the return so I don't pay tax on that amount ?
cheers
No. Your contribution is deducted from gross income in order to provide you with the appropriate tax relief.cheers
A taxpayer gets tax relief for Pension Contributions they make. In SOME circumstances the tax relief is given by deducting the contribution BEFORE Income Tax is calculated,
HOWEVER, that is not the only way it is done.
Sometimes, the tax relief on the contribution is calculated AFTER the tax has been calculated on your normal Gross Salary (less your allowed Personal Tax Allowance).
In these situations, the pension company reclaims the 20% tax relief directly from HMRC and adds it to your pension pot. You then make a separate claim for any tax relief you might be due at Higher Rates of Income Tax.
Sometimes you might need to complete a Self Assessment tax return to do this. Alternatively, HMRC can amend your PAYE Tax Coding in an attempt to give you the Higher Rate tax relief through a coding adjustment. They never get this completely right as they tend to be operating off the previous tax year's information. It also makes your Tax Coding hard to understand.
If you are getting tax relief on the pension contribution by having the contribution deducted from the Gross Salary BEFORE the Income Tax is calculated, this also means that your Class 1 NI is also being reduced (and so is the Employer's NI Contribution). This method has become popular over the years because it saves the employers a fortune on Employer's NI. Obviously, HMRC are not altogether keen on this and they have taken steps in recent years to try and curtail such "Salary Sacrifice" schemes.
HOWEVER, that is not the only way it is done.
Sometimes, the tax relief on the contribution is calculated AFTER the tax has been calculated on your normal Gross Salary (less your allowed Personal Tax Allowance).
In these situations, the pension company reclaims the 20% tax relief directly from HMRC and adds it to your pension pot. You then make a separate claim for any tax relief you might be due at Higher Rates of Income Tax.
Sometimes you might need to complete a Self Assessment tax return to do this. Alternatively, HMRC can amend your PAYE Tax Coding in an attempt to give you the Higher Rate tax relief through a coding adjustment. They never get this completely right as they tend to be operating off the previous tax year's information. It also makes your Tax Coding hard to understand.
If you are getting tax relief on the pension contribution by having the contribution deducted from the Gross Salary BEFORE the Income Tax is calculated, this also means that your Class 1 NI is also being reduced (and so is the Employer's NI Contribution). This method has become popular over the years because it saves the employers a fortune on Employer's NI. Obviously, HMRC are not altogether keen on this and they have taken steps in recent years to try and curtail such "Salary Sacrifice" schemes.
Eric Mc said:
A taxpayer gets tax relief for Pension Contributions they make. In SOME circumstances the tax relief is given by deducting the contribution BEFORE Income Tax is calculated,
HOWEVER, that is not the only way it is done.
Sometimes, the tax relief on the contribution is calculated AFTER the tax has been calculated on your normal Gross Salary (less your allowed Personal Tax Allowance).
In these situations, the pension company reclaims the 20% tax relief directly from HMRC and adds it to your pension pot. You then make a separate claim for any tax relief you might be due at Higher Rates of Income Tax.
Sometimes you might need to complete a Self Assessment tax return to do this. Alternatively, HMRC can amend your PAYE Tax Coding in an attempt to give you the Higher Rate tax relief through a coding adjustment. They never get this completely right as they tend to be operating off the previous tax year's information. It also makes your Tax Coding hard to understand.
If you are getting tax relief on the pension contribution by having the contribution deducted from the Gross Salary BEFORE the Income Tax is calculated, this also means that your Class 1 NI is also being reduced (and so is the Employer's NI Contribution). This method has become popular over the years because it saves the employers a fortune on Employer's NI. Obviously, HMRC are not altogether keen on this and they have taken steps in recent years to try and curtail such "Salary Sacrifice" schemes.
In MOST cases actually. The scenario you describe would only normally apply if the employee was contributing to hIs own PP. Bearing in mind that his employer is paying an 8% contribution, that sounds unlikely.HOWEVER, that is not the only way it is done.
Sometimes, the tax relief on the contribution is calculated AFTER the tax has been calculated on your normal Gross Salary (less your allowed Personal Tax Allowance).
In these situations, the pension company reclaims the 20% tax relief directly from HMRC and adds it to your pension pot. You then make a separate claim for any tax relief you might be due at Higher Rates of Income Tax.
Sometimes you might need to complete a Self Assessment tax return to do this. Alternatively, HMRC can amend your PAYE Tax Coding in an attempt to give you the Higher Rate tax relief through a coding adjustment. They never get this completely right as they tend to be operating off the previous tax year's information. It also makes your Tax Coding hard to understand.
If you are getting tax relief on the pension contribution by having the contribution deducted from the Gross Salary BEFORE the Income Tax is calculated, this also means that your Class 1 NI is also being reduced (and so is the Employer's NI Contribution). This method has become popular over the years because it saves the employers a fortune on Employer's NI. Obviously, HMRC are not altogether keen on this and they have taken steps in recent years to try and curtail such "Salary Sacrifice" schemes.
There is also nothing wrong with salary sacrifice schemes in relation to pensions, and it is not something that HMRC are concerned about.
PostHeads123 said:
Thanks so my P60 the gross amount should that be minus my own contributions as its not the gross is the gross eg before my own contributions ? My payslip is sooo complicated I cant make any real sense of it.
Your P60 will show both your total gross income, and total tax paid. It will not illustrate deductions such as pension contributions, PMI premiums etc.The deductions HMRC need to know about are the taxable ones. eg like PMI, Gym membership, Company Car etc. These should be shown on your P11D.
If you have any concerns, then by all means advise HMRC of your 4% contributions, but as they are pension contributions they will not be taxable.
Hyena said:
In MOST cases actually. The scenario you describe would only normally apply if the employee was contributing to hIs own PP. Bearing in mind that his employer is paying an 8% contribution, that sounds unlikely.
There is also nothing wrong with salary sacrifice schemes in relation to pensions, and it is not something that HMRC are concerned about.
They certainly have come down on salary sacrifice in other areas.There is also nothing wrong with salary sacrifice schemes in relation to pensions, and it is not something that HMRC are concerned about.
At the moment HMRC is hemorrhaging income because of scams and schemes that stop employers from paying Employer's NI. At some point I expect that salary sacrifice for pensions will also come under the spotlight.
The tide is turning.
And regarding how pension tax relief is given - I have seen multiple variations on how tax relief is obtained. The one common factor is that in most cases, the employee hasn't got a clue what is going on./
Eric Mc said:
They certainly have come down on salary sacrifice in other areas.
At the moment HMRC is hemorrhaging income because of scams and schemes that stop employers from paying Employer's NI. At some point I expect that salary sacrifice for pensions will also come under the spotlight.
.
Yes. But we are talking about PENSIONS here. Not buying vouchers or fridges. At the moment HMRC is hemorrhaging income because of scams and schemes that stop employers from paying Employer's NI. At some point I expect that salary sacrifice for pensions will also come under the spotlight.
.
Totally different ball game.
Hyena said:
Yes. But we are talking about PENSIONS here. Not buying vouchers or fridges.
Totally different ball game.
Not a TOTALLY dfiferent ball game at at all. Salary sacrifice treatment of pensions is no different to the salary sacrifice treatment of any benefit offered by an employer. It's allowability for tax or other purposes is totally at the whim of the government - and in the current climate with many employers being perceived to be dodging their NI obligations and other responsibilities to employees in lots of areas, the government may, at any moment, change their mind on how allowable pension contributions are from a salary sacrifice point of view.Totally different ball game.
What remains allowable uinder salary sacrifice schemes is very much based on what governments think are
a) pushing an agenda
b) bribing voters
If a scheme develops a bad smell, it gets chucked out the window pretty darn smart. I've seen it happen numerous times.
Eric Mc said:
Not a TOTALLY dfiferent ball game at at all. Salary sacrifice treatment of pensions is no different to the salary sacrifice treatment of any benefit offered by an employer. It's allowability for tax or other purposes is totally at the whim of the government - and in the current climate with many employers being perceived to be dodging their NI obligations and other responsibilities to employees in lots of areas, the government may, at any moment, change their mind on how allowable pension contributions are from a salary sacrifice point of view.
What remains allowable uinder salary sacrifice schemes is very much based on what governments think are
a) pushing an agenda
b) bribing voters
If a scheme develops a bad smell, it gets chucked out the window pretty darn smart. I've seen it happen numerous times.
The only schemes to develop a bad smell are those which are designed to subvert the original intention of Government legislation. Such as past wheezes like firms part paying people in gold, fine wines etc to avoid income tax. These have rightly been closed down.What remains allowable uinder salary sacrifice schemes is very much based on what governments think are
a) pushing an agenda
b) bribing voters
If a scheme develops a bad smell, it gets chucked out the window pretty darn smart. I've seen it happen numerous times.
The Government however has specifically encouraged people to fund their pensions through use of salary sacrifice for many years; pensions up to fairly recently have been seen to be A Good Thing, which reduce dependence on the state.
More recently, the mood around pensions has become more mixed, with cost savings driving restrictions in contribution limits and harsher LTAs. But. There has been no indication that scrapping salary sacrifice is on the cards, as it was designed specifically to support pension savings.
Any future hit on pension contributions is likely to involve the scrapping of HRT relief.
Edited by Hyena on Wednesday 12th July 14:53
It's perceived abuse, as you state, that creates the "bad smell". One man's "clever tax planning" is another man's "abuse". How politicians view which is which depends on which way the political wind is blowing.
NONE of these schemes are immune from being radically altered, or just closed, if the politicians start picking up bad vibes.
I have a strong feeling that the peasants are revolting - and many "clever wheezes" which once may have been seen as a vote winner, are rapidly becoming vote losers..
Watch this space.
NONE of these schemes are immune from being radically altered, or just closed, if the politicians start picking up bad vibes.
I have a strong feeling that the peasants are revolting - and many "clever wheezes" which once may have been seen as a vote winner, are rapidly becoming vote losers..
Watch this space.
Eric Mc said:
It's perceived abuse, as you state, that creates the "bad smell". One man's "clever tax planning" is another man's "abuse". How politicians view which is which depends on which way the political wind is blowing.
NONE of these schemes are immune from being radically altered, or just closed, if the politicians start picking up bad vibes.
I have a strong feeling that the peasants are revolting - and many "clever wheezes" which once may have been seen as a vote winner, are rapidly becoming vote losers..
Watch this space.
I fear you are over estimating the average voter's "bribery" potential. 90% of the great British public wouldn't even know what salary sacrifice was if it came up and kicked them in the bNONE of these schemes are immune from being radically altered, or just closed, if the politicians start picking up bad vibes.
I have a strong feeling that the peasants are revolting - and many "clever wheezes" which once may have been seen as a vote winner, are rapidly becoming vote losers..
Watch this space.
ks. And that includes many who are actually benefiting from it. As a "vote winner", it's a non starter.
I don't think Eric and Hyena have quite got it right
But I have seen plenty of accountants and lawyers get it wrong over the years and Eric is quite right in saying that employers don't understand them. (I was giving a training session for lawyers today on money purchase loss of pension and they really don't like pensions...)
In terms of P60, the gross pay on there will be after employee contributions are deducted if either the contribution is under a defined benefit scheme (final / average salary) or money purchase / personal pension done via salary sacrifice. Defined benefit does not have to be done under salary sacrifice to have the contribution deducted from gross pay to get the gross figure on the P60 (salary sacrifice in that case saves NIC).
Salary sacrifice for pension has been specifically stated by the government as something they are not attacking (similar to low emission company cars by sal sacrifice)
Now, if a money purchase contribution is made by an employee, then, before being deducted from salary, there is a deduction of 20% for basic rate tax - the pension company claims the tax back from hmrc.
So if the employee is paying say 5% of monthly salary of £2,000, that is £100 gross. A notional £20 deduction is made for basic rate relief and £80 deducted from net pay. Hmrc pays £20 to the pension scheme. This contribution would not be shown on the P60 (i.e. Gross pay is before that deduction)
So, the key question of do I need to do anything to get the right tax relief? If you are a basic rate taxpayer only you already have the 20% relief and don't need to do anything else. But a higher rate taxpayer would need to claim the difference between basic rate and highe rate through tax return
I hope I got all that right - am feeling knackered from too many long days!
But I have seen plenty of accountants and lawyers get it wrong over the years and Eric is quite right in saying that employers don't understand them. (I was giving a training session for lawyers today on money purchase loss of pension and they really don't like pensions...)
In terms of P60, the gross pay on there will be after employee contributions are deducted if either the contribution is under a defined benefit scheme (final / average salary) or money purchase / personal pension done via salary sacrifice. Defined benefit does not have to be done under salary sacrifice to have the contribution deducted from gross pay to get the gross figure on the P60 (salary sacrifice in that case saves NIC).
Salary sacrifice for pension has been specifically stated by the government as something they are not attacking (similar to low emission company cars by sal sacrifice)
Now, if a money purchase contribution is made by an employee, then, before being deducted from salary, there is a deduction of 20% for basic rate tax - the pension company claims the tax back from hmrc.
So if the employee is paying say 5% of monthly salary of £2,000, that is £100 gross. A notional £20 deduction is made for basic rate relief and £80 deducted from net pay. Hmrc pays £20 to the pension scheme. This contribution would not be shown on the P60 (i.e. Gross pay is before that deduction)
So, the key question of do I need to do anything to get the right tax relief? If you are a basic rate taxpayer only you already have the 20% relief and don't need to do anything else. But a higher rate taxpayer would need to claim the difference between basic rate and highe rate through tax return
I hope I got all that right - am feeling knackered from too many long days!
oop north said:
I don't think Eric and Hyena have quite got it right
But I have seen plenty of accountants and lawyers get it wrong over the years and Eric is quite right in saying that employers don't understand them. (I was giving a training session for lawyers today on money purchase loss of pension and they really don't like pensions...)
In terms of P60, the gross pay on there will be after employee contributions are deducted if either the contribution is under a defined benefit scheme (final / average salary) or money purchase / personal pension done via salary sacrifice. Defined benefit does not have to be done under salary sacrifice to have the contribution deducted from gross pay to get the gross figure on the P60 (salary sacrifice in that case saves NIC).
Salary sacrifice for pension has been specifically stated by the government as something they are not attacking (similar to low emission company cars by sal sacrifice)
Now, if a money purchase contribution is made by an employee, then, before being deducted from salary, there is a deduction of 20% for basic rate tax - the pension company claims the tax back from hmrc.
So if the employee is paying say 5% of monthly salary of £2,000, that is £100 gross. A notional £20 deduction is made for basic rate relief and £80 deducted from net pay. Hmrc pays £20 to the pension scheme. This contribution would not be shown on the P60 (i.e. Gross pay is before that deduction)
So, the key question of do I need to do anything to get the right tax relief? If you are a basic rate taxpayer only you already have the 20% relief and don't need to do anything else. But a higher rate taxpayer would need to claim the difference between basic rate and highe rate through tax return
I hope I got all that right - am feeling knackered from too many long days!
That's exactly what I said.But I have seen plenty of accountants and lawyers get it wrong over the years and Eric is quite right in saying that employers don't understand them. (I was giving a training session for lawyers today on money purchase loss of pension and they really don't like pensions...)
In terms of P60, the gross pay on there will be after employee contributions are deducted if either the contribution is under a defined benefit scheme (final / average salary) or money purchase / personal pension done via salary sacrifice. Defined benefit does not have to be done under salary sacrifice to have the contribution deducted from gross pay to get the gross figure on the P60 (salary sacrifice in that case saves NIC).
Salary sacrifice for pension has been specifically stated by the government as something they are not attacking (similar to low emission company cars by sal sacrifice)
Now, if a money purchase contribution is made by an employee, then, before being deducted from salary, there is a deduction of 20% for basic rate tax - the pension company claims the tax back from hmrc.
So if the employee is paying say 5% of monthly salary of £2,000, that is £100 gross. A notional £20 deduction is made for basic rate relief and £80 deducted from net pay. Hmrc pays £20 to the pension scheme. This contribution would not be shown on the P60 (i.e. Gross pay is before that deduction)
So, the key question of do I need to do anything to get the right tax relief? If you are a basic rate taxpayer only you already have the 20% relief and don't need to do anything else. But a higher rate taxpayer would need to claim the difference between basic rate and highe rate through tax return
I hope I got all that right - am feeling knackered from too many long days!
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