You may be making pension contributions but in certain circumstances you may be eligible to claim additional tax relief.
Many pension providers operate a RAS (Relief at source) scheme. Your employee contributions are made to the pension company net of 20% tax relief. There are statutory bands with upper and lower monthly earnings limits. Someone earning £3,750 or more per month (£45,000 p.a.) is likely to see a contribution (assuming 5% of earnings is contributed) of £129.20 on their payslip, which is £161.50 less 20% tax relief of £32.30.
If earnings are less than £50,270 then no further tax relief is due. However, if earnings are say £60,000 p.a. and therefore tax at 40% is being paid, further tax relief is due but this needs to be claimed either in a tax return or by writing to HMRC.
In this case, the total pension payment is £161.50 * 12 = £1,938. 20% tax relief has been given at source – £387.60 – but a further £387.60 can be claimed back from HMRC.
Higher-rate and additional-rate taxpayers can now claim tax relief via HMRC’s online service. To be eligible, you must be paying into a personal or workplace pension scheme and be paying more than the basic rate of tax This is only available for those that are not completing self-assessment tax returns already.
In addition, though, the pension contributions in total also reduce gross income when calculating the High Income Child Benefit Charge. The amount to pay depends on an individual’s ‘adjusted net income’, and the amount of Child Benefit the claimant is entitled to receive. Adjusted net income is total taxable income minus certain tax reliefs, for example: trading losses (for the self-employed), Gift Aid charity donations, and pension contributions.
Please get in touch with us if your situation is unclear and you would like to discuss this further.