Hi all
When HMRC code pension contributions into a tax code, do you know is they are coded gross or net (of the 20% tax relief)?
Thank you in advance!
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For a higher rate tax payer ?
Neither - it's simply some calculated attempt to get the additional relief right. It'll be some approximation.
HMRC have kicked back a claim for overpayment relief as they stated 'pension relief was coded in" indeed it was but, as you say, it is an approximation and my client paid more pension contributions than they had in the previous year - So am just trying to quantify HMRCs assertion (which, incidentally, I think they have wrong.
Maybe my brain is having an evening off but... isn't it the current tax relief that's coded out and don't overpayment claims relate to earlier years?
I don't have one to hand but I expect the gross pension contribution is added in to extend the basic rate band as required.
What tax year does it relate to? I agree that their assertion is wrong given that amounts included in tax codes are estimated. Ask them whether they would also not adjust to collect the tax if the estimated pension contribution was in fact overstated?
I don't have one to hand but I expect the gross pension contribution is added in to extend the basic rate band as required.
Might work in a P800 - but in a tax code ?
Thanks for your comments.
It looks like HMRC calculate as follows:
Gross pension contributions/2 = Tax coded element
Which sorts the tax relief for HRT.
My client is due a refund, as tax coding was based on 13/14 pension payments and he increased his contributions for 14/15 hence the mismatch, so will revert to HMRC (now that I can prove it!)
NB this relates to tax year 14/15 - hence overpayment relief.
It's not a complex calculation. If the taxpayer's paid £1000 gross, £800 net, he'll be due another £200 tax relief. HMRC need to give him extra allowances to effect the £200 reduction.
At 40%, that's £500. Which is indeed half his gross payment. Logical because he got half the tax relief at source.
At that ends today's rocket science lecture.
Does it matter that something was coded?
HMRC approximated relief in the code and employer deducted tax based on the code issued.
You now have:
- a figure of gross salary and tax deducted based on the code operated through the year; and
- a figure of pension contributions actually made in the year
If the tax computation using actual figures for income and pension contributions produces a liability less than the tax deducted under PAYE then there's a refund due. What was put into the PAYE code has absolutely no bearing on it.
It's true that the coding is about collecting tax, rather than establishing the correct amount due.
Nevertheless, it's nice to have HMRC collect the correct tax in the first place and not wait years for them to deal with a repayment.
My comment was because it sounds as if HMRC refused the claim because there had been a coding adjustment, which is surely rubbish.
Indeed, HMRC dismissed the claim because there was already a pension coding in place (they had not compared the actual to the coded amount) - I am not actually sure of what they did look at. I have re-sent the relevant info, highlighting actual versus coded.
Are we are now in a John Grisham type world where HMRC are initially refusing in the hope that it will go away? or am I being too cynical....
I go back to my first comment. A tax repayment is due for 2014/15. What has that to do with coding for pension payments now? Just claim the refund.
And see Paul's comments.