Check HMRC calculations carefully
Have you obtained full tax relief on your pension contributions?
HMRC have recently contacted around seven million PAYE taxpayers to either repay overpaid Income Tax or to collect arrears of underpaid tax for 2010/11 or earlier years.
Many of HMRC’s calculations are incorrect as they do not correctly reflect higher or additional rate tax relief due on pension contributions.
So how do you ensure you receive the correct level of tax relief?
The method of granting tax relief depends on the type of pension arrangement. If you are a member of an occupational pension scheme, contributions are deducted from gross pay and the higher or additional rate tax relief will be automatically granted to you through your net pay.
With most employers now operating Group Personal Pension Plans or Stakeholder Pension Schemes, the method of obtaining relief is different. Only basic rate tax relief for Personal Pension payments and payments to Free Standing Additional Voluntary Contribution Schemes (FSAVCS) is given at source.
If you make these types of contributions, and are within the Self Assessment tax system, you can receive any higher or additional rate tax relief on your pension contribution by making a claim in your annual tax return. However, most taxpayers are not within the Self Assessment system and hence rely on the PAYE system. Unless you make a claim, HMRC are not aware of the level of contributions payable and as such they were not aware of the relief due when issuing their recent tax calculations to seven million taxpayers.
As a result of the above, it is always worth checking you are receiving your full pension relief.
For those with arrears, it may well wipe out the tax being demanded from HMRC. For others, there could be a repayment cheque in time for Christmas!
If you have any questions in relation to the above, please get in touch with your Johnston Carmichael contact or George Mason, Tax Manager, in our Edinburgh office on 0131 220 2203. email@example.com.
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