Paying freelance fees into a SIPP
Discussion
I'm mostly PAYE, but I'm doing some consultation outside of work. I'm not planning on touching the money, and putting it straight into my SIPP.
They are paying me gross (I have to deal with the tax) and when I pay into my SIPP they will rebate the first 20% of tax. However, as I've not paid any tax on this, is that right?
Will it come out in the wash when I do my self-assesment?
Sorry if the key sentence is gibberish, but I'm very tired tonight!
They are paying me gross (I have to deal with the tax) and when I pay into my SIPP they will rebate the first 20% of tax. However, as I've not paid any tax on this, is that right?
Will it come out in the wash when I do my self-assesment?
Sorry if the key sentence is gibberish, but I'm very tired tonight!
Ha, yeah, like I said, was very tired when I posted that. Hopefully take two is clearer!
The firm that's paying me expect me to take care of any tax, so they pay me gross.
I pay the gross amount into my SIPP and at that point the pension company make a tax relief payment equivalent to 25% of what I've paid in.
I understand that the tax relief payment makes sense when it's coming from my PAYE income. When it's a gross payment to me, I've not paid tax on it. So when I pay that gross salary in, and the tax relief payment is made is that tax relief payment correct or something that I'll have to repay when I do a self assessment?
Hopefully it makes more sense this time!
The firm that's paying me expect me to take care of any tax, so they pay me gross.
I pay the gross amount into my SIPP and at that point the pension company make a tax relief payment equivalent to 25% of what I've paid in.
I understand that the tax relief payment makes sense when it's coming from my PAYE income. When it's a gross payment to me, I've not paid tax on it. So when I pay that gross salary in, and the tax relief payment is made is that tax relief payment correct or something that I'll have to repay when I do a self assessment?
Hopefully it makes more sense this time!
ThisInJapanese said:
The firm that's paying me expect me to take care of any tax, so they pay me gross.
I pay the gross amount into my SIPP and at that point the pension company make a tax relief payment equivalent to 25% of what I've paid in.
Sounds like you've got the Government paying your tax for you I pay the gross amount into my SIPP and at that point the pension company make a tax relief payment equivalent to 25% of what I've paid in.
I assume you are being treated as "self employed" for this stream of income. You pay Income Tax on your Self Employed profits under the self assessment tax system - which I assume you are now registered for and that you are now submitting self assessment tax returns.
You also have a separate stream of income which is taxed under the PAYE system as employment income.
Your overall income tax liability will be based on a combination of your gross PAYE salary and your self employed profits. You are given credit for Income Tax already paid under PAYE with the balance of any additional tax due on teh self employed profits is payable through self assessment.
If you are making voluntary contributions to a pension scheme, you are entitled to Income Tax relief on these contributions.
The tax relief is given in two ways, depending on whether you pay tax at basic rate only or whether you pay tax at both basic rate or higher rate.
If the former, i.e. you a basic rate taxpayer only, you do not get any direct tax relief or tax refunds paid to you. HM government gives you tax relief at basic rate tax by paying the tax relief directly to the pension company.
If you are a higher rate tax payer, you WILL get either a tax refund based on the higher rate relief directly paid to you or a reduction in your overall self assessment tax bill.
You also have a separate stream of income which is taxed under the PAYE system as employment income.
Your overall income tax liability will be based on a combination of your gross PAYE salary and your self employed profits. You are given credit for Income Tax already paid under PAYE with the balance of any additional tax due on teh self employed profits is payable through self assessment.
If you are making voluntary contributions to a pension scheme, you are entitled to Income Tax relief on these contributions.
The tax relief is given in two ways, depending on whether you pay tax at basic rate only or whether you pay tax at both basic rate or higher rate.
If the former, i.e. you a basic rate taxpayer only, you do not get any direct tax relief or tax refunds paid to you. HM government gives you tax relief at basic rate tax by paying the tax relief directly to the pension company.
If you are a higher rate tax payer, you WILL get either a tax refund based on the higher rate relief directly paid to you or a reduction in your overall self assessment tax bill.
ThisInJapanese said:
plenty said:
No, you should not be getting tax relief on untaxed income. Tell your SIPP provider that these contributions are from self-employed untaxed income, not taxed PAYE income.
Thank you.22 said:
If he pays enough tax elsewhere on PAYE to cover the relief amount does it matter where the money comes from? Long as he separately pays the necessary tax etc on self employed income.
Correct. Income Tax combines all your income from all sources. If your combined gross income from all sources is enough to generate a tax liability (it doesn't matter whether the tax liability is being paid under PAYE, Self Assessment or any other method), then tax relief on pension contributions can be obtained.22 said:
ThisInJapanese said:
plenty said:
No, you should not be getting tax relief on untaxed income. Tell your SIPP provider that these contributions are from self-employed untaxed income, not taxed PAYE income.
Thank you.Eric Mc said:
Correct. Income Tax combines all your income from all sources. If your combined gross income from all sources is enough to generate a tax liability (it doesn't matter whether the tax liability is being paid under PAYE, Self Assessment or any other method), then tax relief on pension contributions can be obtained.
Thank you.ThisInJapanese said:
Eric Mc said:
Only if he is a complete non-tax payer. The OP does not suggest that his income rates are so low that he isn't liable to some tax.
I am liable to tax unfortunately.Eric Mc said:
Precisely, so paying contributions into a pension scheme will attract tax relief, as outlined by me above.
Yes, your post earlier made sense. In short, it all comes out in the wash when I submit my Self Assessment. It's what I can claim back from my higher rate contributions minus the tax I owe on my self-employed profits. Gassing Station | Finance | Top of Page | What's New | My Stuff