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Confused: NEST contributions on Tax Return

Do higher rate taxpayers get to claim relief, or not?

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As basic a query it it sounds, I've seen conflicting treatment by other firms.

So, setting the scenario - client earns £52k p.a. gross in employment income under PAYE. He has some other bits (divs and property) and files Tax Returns.

The employer pays monthly contributions into NEST (not salary sacrifice) - split into employer's (3%) and employee's (5%).

ER conts - I believe are not included in the £52k, and thus relief was obtained by not being taxed on these in the first place.

EE conts - NEST website states that they operate a Relief At Source scheme, so that for every £8 in EE conts they claim £2 from HMRC.

Am I right, then, thinking that the employee's BRB is to be increased by the grossed up EE conts to NEST, to provide releif at the higher rate, via an enrtry in their Tax Return?

Replies (24)

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By Wanderer
09th Nov 2021 11:27

No.

Thanks (2)
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By Truthsayer
09th Nov 2021 11:30

No. The basic rate band is extended, not the PA.

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Replying to Truthsayer:
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By ARYEHDE
09th Nov 2021 11:49

Oh, apologies. Meant BRB and not PA!

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By Paul Crowley
09th Nov 2021 11:41

Salary sacrifice sounds odd
The usual term is net pay scheme

That scheme is different to the one that gets tax relief at source
The latter needs to be put on a tax return or claim sent to HMRC to get the higher rate relief
And that works by increasing the basic rate band

Thanks (0)
Replying to Paul Crowley:
RLI
By lionofludesch
09th Nov 2021 11:54

Paul Crowley wrote:

Salary sacrifice sounds odd

Does not "salary sacrifice" refer to the case where the employer pays the whole 8% and the employee agrees to take a pay cut ? The object is to save a few quid in NI.

It doesn't sound like that's what's happening here but correct me if I've misunderstood.

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Replying to lionofludesch:
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By Paul Crowley
09th Nov 2021 12:12

Three different ways to deal with staff pensions so it seems
HMRC recognise 2 in their basic tools
Net pay scheme
Not net pay scheme
Salary sacrifice no need to recognise as employee is not making any direct contribution

I raised the point as net pay does exist.
Not yet come across a salary sacrifice

Now is net,Smart is net, The peoples pension operate a net scheme
Not surprising that these can confuse

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By mbee1
09th Nov 2021 11:43

You are correct in that NEST operates Relief at Source and not net pay. Tax Return entry required so the BR band is extended to obtain higher rate relief.

Thanks (1)
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By ARYEHDE
09th Nov 2021 11:50

Thanks all - it's just that many other advisors seem to ignore NEST EE conts altogether for HR taxpayers, which made me query this!

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Replying to ARYEHDE:
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By accountaholic
09th Nov 2021 12:52

ARYEHDE wrote:

Thanks all - it's just that many other advisors seem to ignore NEST EE conts altogether for HR taxpayers, which made me query this!

I wonder how many HR taxpayers who don't need to do a tax return haven't bothered or don't know they can claim further relief on their contributions?

Thanks (3)
Replying to accountaholic:
RLI
By lionofludesch
09th Nov 2021 13:01

accountaholic wrote:

ARYEHDE wrote:

Thanks all - it's just that many other advisors seem to ignore NEST EE conts altogether for HR taxpayers, which made me query this!

I wonder how many HR taxpayers who don't need to do a tax return haven't bothered or don't know they can claim further relief on their contributions?

Loads.

Thanks (1)
Replying to lionofludesch:
By kenny achampong
09th Nov 2021 13:40

Probably hundreds of thousands I'd say. Who on earth thought that doing it this way round was a good idea ? Or did they do it deliberately to save money ?

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Replying to kenny achampong:
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By Paul Crowley
09th Nov 2021 13:51

For low paid people the tax relief works even if they pay no tax
Nest was the one being pushed by HM Gov

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Replying to Paul Crowley:
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By Not Anonymous
09th Nov 2021 14:47

Plans are afoot to change things so low earners in net pay schemes get some relief in the future.

https://www.gov.uk/government/consultations/pensions-tax-relief-administ...

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Replying to Not Anonymous:
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By Hugo Fair
09th Nov 2021 19:07

One of the better kept secrets from the Budget ... but, although the operational details are as yet unclear, it is not the intention that the 'tax relief' be added to the person's pension contributions - so still not direct equivalence between the two scheme types.

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Replying to Hugo Fair:
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By Not Anonymous
09th Nov 2021 20:17

I suspect that the majority of net pay contributions are made to defined benefit schemes where giving the tax relief to the pension scheme will make absolutely no difference to the pension entitlement.

Different with the auto-enrolment schemes which are defined contribution I guess but with those the individual could always use the payment to make additional contributions if they wanted.

Thanks (0)
Replying to kenny achampong:
RLI
By lionofludesch
09th Nov 2021 13:55

kenny achampong wrote:

Probably hundreds of thousands I'd say. Who on earth thought that doing it this way round was a good idea ? Or did they do it deliberately to save money?

It's not just NEST. It's been that way since pensions had basic rate relief at source which was, I think, 1988. Your run-of-the-mill employees see the tax relief and think the job's done.

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By jonharris999
09th Nov 2021 11:57

So NEST is the exact opposite of Smart Pensions, another big provider. How very helpful.

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Replying to jonharris999:
RLI
By lionofludesch
09th Nov 2021 12:03

jonharris999 wrote:

So NEST is the exact opposite of Smart Pensions, another big provider. How very helpful.

Does it not depend on the settings the employer chooses ?

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Replying to lionofludesch:
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By Paul Crowley
09th Nov 2021 12:16
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Replying to lionofludesch:
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By jonharris999
09th Nov 2021 14:03

@Lion - only The People's Pension, of the very big ones, offer the employer a choice. NEST is always RAS, Smart Pensions is always NPA.

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By mbee1
09th Nov 2021 13:10

It was another Government bodge up. It was far too complicated. They should have made everyone eligible with no earnings limit, just an opt out, and made all the schemes net pay.

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By kathyk0410
10th Nov 2021 12:28

Plus all the Scottish taxpayers who pay tax at 21% - though for most the 1% probably isn't worth the effort of reclaiming - HMRC are "generous" though in giving the 19% taxpayers 20% relief with no repayment necessary.

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Replying to kathyk0410:
paddle steamer
By DJKL
10th Nov 2021 12:48

I certainly claim re my People's contributions but I am still HR (just), if I drop below HR threshold (say drop another day at work) not sure I would want to be in SA just for 1%.

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By jonharris999
09th Dec 2021 09:58

I recently discovered this helpful page from TPR which shows the common providers generally set up for one method vs. the other - although note the footnotes.

https://www.thepensionsregulator.gov.uk/en/employers/new-employers/im-an...

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