Pension - relief at source
Discussion
OK brave trousers on to ask what may be a silly question but is causing me pause for thought.
I pay into a company pension where the pension is deducted prior to tax ( i.e taxable pay has the pension removed)
I have seen at https://www.gov.uk/workplace-pensions/managing-you... that as this is the Net pay method then Your employer takes your contribution from your pay before it’s taxed. You only pay tax on what’s left. This means you get full tax relief, no matter if you pay tax at the basic, higher or additional rate.
All good so far and no benefit to be gained on self assessment as a higher rate earner.
However my employer ALSO makes a contribution.
so from https://www.gov.uk/tax-on-your-private-pension/pen...
When you have to claim tax relief:
You may be able to claim tax relief on pension contributions if:
Im going to guess no but if you don't ask...
Thanks
I pay into a company pension where the pension is deducted prior to tax ( i.e taxable pay has the pension removed)
I have seen at https://www.gov.uk/workplace-pensions/managing-you... that as this is the Net pay method then Your employer takes your contribution from your pay before it’s taxed. You only pay tax on what’s left. This means you get full tax relief, no matter if you pay tax at the basic, higher or additional rate.
All good so far and no benefit to be gained on self assessment as a higher rate earner.
However my employer ALSO makes a contribution.
so from https://www.gov.uk/tax-on-your-private-pension/pen...
When you have to claim tax relief:
You may be able to claim tax relief on pension contributions if:
- you pay Income Tax at a rate above 20% and your pension provider claims the first 20% for you (relief at source)
- your pension scheme is not set up for automatic tax relief
- someone else pays into your pension
Im going to guess no but if you don't ask...
Thanks
but the employer is somebody else its not me.
to be clear say I put in (or my company does so on my behalf) £1 pre tax, then that's fine all my relief is covered by not paying the tax.
But if the company also pay £1 then what is the tax status of that money?
i.e. total contribution is £2
in your example I am "your son" and "you" are the company IYSWIM?
to be clear say I put in (or my company does so on my behalf) £1 pre tax, then that's fine all my relief is covered by not paying the tax.
But if the company also pay £1 then what is the tax status of that money?
i.e. total contribution is £2
in your example I am "your son" and "you" are the company IYSWIM?
Your employer is 'your employer' as referred to throughout that page. I know that technically your employer is also 'someone else' but that's not what it means. If they meant 'your employer makes a contribution' they would have said so.
The contribution that your employer makes on your behalf is just salary. They are paying it into the pension and not including it in your income, so you are getting tax relief in exactly the same way as the deduction made pre-tax on your contribution. The only difference is that the employer isn't giving you the option of what to do with their contribution.
The contribution that your employer makes on your behalf is just salary. They are paying it into the pension and not including it in your income, so you are getting tax relief in exactly the same way as the deduction made pre-tax on your contribution. The only difference is that the employer isn't giving you the option of what to do with their contribution.
gmasterfunk said:
Many thanks to both of you.
That makes sense re the company pension contribution just being salary that isn't taxed.
You are currently paying NI on your contribution so you should ask your employer if they run Salary Sacrifice which essentially means you trouser the NI on your contribution and some employers give the employers NI (not paid on the SS) or a chunk of it.That makes sense re the company pension contribution just being salary that isn't taxed.
I'm pretty clueless about pensions and finance in general. I have no other income other than my salary and bonuses. But I was wondering about my income and my pension provisions, so I asked AI a bunch of questions and it has raised something interesting.
My employer pays into a private pension fund, and I contribute £1000 pcm too. But AI tells me that my pension contributions are so-called "Relief at Source" which if I am not mistaken means that I am being taxed as if I were not paying in, whereas I should be taxed less. I would have thought that HMRC should already know what I contribute and tax me accordingly. But apparently they do not automatically know.
Gemini thinks I am due a tax refund of £4750 and suggests that I write to HMRC. But before I do that, I wanted to see if I can corroborate what Gemini is telling me so that I don't make a total arse out of myself. I have worked for the company since end of 2021 but only began contributing myself in October 2024.
Questions:
- Does HMRC automatically take my employer's contributions into account? Do those contributions factor into my tax bill at all?
- Does HMRC automatically take my own contributions into account or not?
- Is Gemini likely to be right?
Here's a transcript of part of my conversation, hopefully with non-relevant info redacted.
Thanks for any helpful answers. And to those who are going to tell me I'm an idiot. Yes, I already know. Luckily I'm not a dunce in every area of life.
My employer pays into a private pension fund, and I contribute £1000 pcm too. But AI tells me that my pension contributions are so-called "Relief at Source" which if I am not mistaken means that I am being taxed as if I were not paying in, whereas I should be taxed less. I would have thought that HMRC should already know what I contribute and tax me accordingly. But apparently they do not automatically know.
Gemini thinks I am due a tax refund of £4750 and suggests that I write to HMRC. But before I do that, I wanted to see if I can corroborate what Gemini is telling me so that I don't make a total arse out of myself. I have worked for the company since end of 2021 but only began contributing myself in October 2024.
Questions:
- Does HMRC automatically take my employer's contributions into account? Do those contributions factor into my tax bill at all?
- Does HMRC automatically take my own contributions into account or not?
- Is Gemini likely to be right?
Here's a transcript of part of my conversation, hopefully with non-relevant info redacted.
Gemini said:
You are in Scenario B: Relief at SourceBased on the payslip you provided, your pension is operating under Relief at Source.
Here is exactly how we can tell by doing the math on your numbers:
Your pension does not reduce your taxable pay: Your "Total taxable pay to date" for this period is listed as £xxxxxx. If we calculate the standard income tax on £xxxxxxx using your 1448L tax code, the tax bill comes out to exactly £xxxxx. This perfectly matches the £xxxxxx listed as your year-to-date tax.
The deduction is taken after tax: Because the tax calculated matches your full taxable pay, it proves that your £12,000.00 in year-to-date pension contributions were not deducted before HMRC calculated your tax bill.
It acts as a standard deduction: Your monthly "Pension Provider" contribution of £1,000.00 is simply subtracted from your total gross pay of £xxxxxx —alongside your tax and National Insurance—to arrive at your final net pay of £xxxxx.
What this means for you
Because you are in Scenario B and are a higher-rate taxpayer, your pension provider (Royal London) is only claiming the basic 20% tax relief automatically to add to your pot.
To get the remaining 20% tax relief—and crucially, to ensure your Adjusted Net Income is correctly reduced so you can avoid the 60% £100k tax trap we discussed earlier—you must declare these £12,000 in personal contributions to HMRC. You can do this by filling out a Self Assessment tax return or by contacting HMRC directly so they can adjust your tax code to give you the extra relief.
Here is exactly how we can tell by doing the math on your numbers:
Your pension does not reduce your taxable pay: Your "Total taxable pay to date" for this period is listed as £xxxxxx. If we calculate the standard income tax on £xxxxxxx using your 1448L tax code, the tax bill comes out to exactly £xxxxx. This perfectly matches the £xxxxxx listed as your year-to-date tax.
The deduction is taken after tax: Because the tax calculated matches your full taxable pay, it proves that your £12,000.00 in year-to-date pension contributions were not deducted before HMRC calculated your tax bill.
It acts as a standard deduction: Your monthly "Pension Provider" contribution of £1,000.00 is simply subtracted from your total gross pay of £xxxxxx —alongside your tax and National Insurance—to arrive at your final net pay of £xxxxx.
What this means for you
Because you are in Scenario B and are a higher-rate taxpayer, your pension provider (Royal London) is only claiming the basic 20% tax relief automatically to add to your pot.
To get the remaining 20% tax relief—and crucially, to ensure your Adjusted Net Income is correctly reduced so you can avoid the 60% £100k tax trap we discussed earlier—you must declare these £12,000 in personal contributions to HMRC. You can do this by filling out a Self Assessment tax return or by contacting HMRC directly so they can adjust your tax code to give you the extra relief.
LunarOne said:
Doesn't HMRC automatically know this?
Gemini said:
No, HMRC does not automatically know. This is a very common trap that catches out thousands of higher-rate taxpayers every year.
Because your pension is set up as Relief at Source, your pension provider (Royal London) only reports to HMRC to claim the basic 20% block tax relief to put into your pension pot. They do not report your individual contributions in a way that automatically adjusts your tax code or triggers a refund for the higher-rate (40%) tax you pay.
It is entirely up to you to notify HMRC so they can give you the remaining 20% relief. If you don't ask for it, HMRC simply keeps the money.
How to claim your money back
You need to act to get this money back. Here is how you can do it:
1. Call or write to HMRC (Easiest if you don't do Self Assessment)
If you don't normally fill out a Self Assessment tax return, you don't necessarily have to start now. You can simply call HMRC or write them a letter.
You will need to provide them with:
Your National Insurance number.
The name of your pension provider (xxxxxxx) and your account number.
A breakdown of exactly how much you paid into the pension out of your own pocket in each of the last 4 tax years (April 6th to April 5th).
2. Through Self Assessment
If you already file a Self Assessment tax return, you can log in and amend your previous returns (though there are time limits for online amendments, so you may need to write to them for the oldest years). Going forward, there is a specific box on the tax return for "Payments to registered pension schemes where basic rate tax relief will be claimed by your pension provider" where you simply type in the "grossed-up" amount of your contributions.
Last year I got fed up with completing a tax return and told HMRC that I felt I didn't need to complete one. They agreed and told me I didn't need to submit one for 2024-2025. Perhaps I was too hasty. If I tell them and they send me a refund, will I have to tell them every time I change my pension contributions? Not that I do that often, but it's something to keep in mind.Because your pension is set up as Relief at Source, your pension provider (Royal London) only reports to HMRC to claim the basic 20% block tax relief to put into your pension pot. They do not report your individual contributions in a way that automatically adjusts your tax code or triggers a refund for the higher-rate (40%) tax you pay.
It is entirely up to you to notify HMRC so they can give you the remaining 20% relief. If you don't ask for it, HMRC simply keeps the money.
How to claim your money back
You need to act to get this money back. Here is how you can do it:
1. Call or write to HMRC (Easiest if you don't do Self Assessment)
If you don't normally fill out a Self Assessment tax return, you don't necessarily have to start now. You can simply call HMRC or write them a letter.
You will need to provide them with:
Your National Insurance number.
The name of your pension provider (xxxxxxx) and your account number.
A breakdown of exactly how much you paid into the pension out of your own pocket in each of the last 4 tax years (April 6th to April 5th).
2. Through Self Assessment
If you already file a Self Assessment tax return, you can log in and amend your previous returns (though there are time limits for online amendments, so you may need to write to them for the oldest years). Going forward, there is a specific box on the tax return for "Payments to registered pension schemes where basic rate tax relief will be claimed by your pension provider" where you simply type in the "grossed-up" amount of your contributions.
Thanks for any helpful answers. And to those who are going to tell me I'm an idiot. Yes, I already know. Luckily I'm not a dunce in every area of life.
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