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UK Tax question My client contributes 10% of his salary into…

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UK Tax questionMy client contributes...
UK Tax questionMy client contributes 10% of his salary into a workplace pension each month, in addition to his employer’s contribution of 5%.His work have confirmed that his 10% contribution is deducted prior to any income tax deductions.The letter from his pension scheme advisors dated 4th February 2013, stated that“You currently contribute 10% of your pensionable salary, i.e. £416.67 gross per month. Pension plans are the only contracts where pension contributions benefit from tax relief, i.e basic rate tax is automatically added to your pension contract, increasing the amount invested. If your total income means that you are a higher rate tax-payer you should notify HM Revenue & Customs of any personal contributions made, so you can receive your higher rate relief.”HMRC’s website (https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief) appears to concur with this approach, stating that:“You get the tax relief automatically if your:
• employer takes workplace pension contributions out of your pay before deducting Income Tax
• pension provider claims tax relief for you at a rate of 20% and adds it to your pension pot (‘relief at source’)”However, HMRC have confirmed to me today on the phone that if the contribution comes from pre-tax earnings, which appears to be the case here, then no tax relief is due (at basic or higher rate) as no tax has been deducted. This appears to conflict with what NW Brown & Company Limited have advised in their letter and also what HMRC have on their website.Can anyone confirm if tax relief is due or not?
Submitted: 8 months ago.Category: UK Tax
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Answered in 1 hour by:
12/14/2017
UK Tax Professional: Sam, Accountant replied 8 months ago
Sam
Sam, Accountant
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Hi, Sam here, one of the UK Tax Experts here on Just Answer, Thank you for your question - I shall reply shortly.

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UK Tax Professional: Sam, Accountant replied 8 months ago

HI

Higher rate tax relief is only due where the contribution is taken out of taxed income (so after tax has been deducted) ALL workplace pensions take the contribution pre tax so no further relief is due in this case

Thanks

Sam

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Customer reply replied 8 months ago
Hi Sam, thanks for confirming that. Do you therefore agree that the information on the HMRC is at best misleading and at worst wrong? It appears to say that you get tax relief if your contributions are paid gross, or am I interpreting it incorrectly? Many thanks
UK Tax Professional: Sam, Accountant replied 8 months ago

HI

No the website is correct when they state

"You get the tax relief automatically if your:
• employer takes workplace pension contributions out of your pay before deducting Income Tax" which is the case here and whilst it seems in contradiction to what HMRC stated on the telephone,as basic rate is due, its just given at source and I just believe their wording and understanding of what you asked was inadequate rather then they meant no tax relief at all (they follow from scripts and know very little about tax) so your mentioning tax relief at source or furtehr tax releif being due might have thrown them off kilter !

SO to recap relief is due at 20% only as its on pre taxed earnings

Thanks

Sam

Thanks

Sam

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Customer reply replied 8 months ago
Hi Sam,Thanks, ***** ***** to clarify the position. The relief at source is automatic and is at 20% (even though he hasn't actually paid tax on this) but he does not get the higher rate tax relief (the additional 20%, taking it to 40%) as the contributions are made from pre-tax earnings.Many thanks,
Bethany
UK Tax Professional: Sam, Accountant replied 8 months ago

Hi Bethany

Thats it - he gets 20% relief on top of his contribution made direct to the employer workplace pension from his salary (prior to taxation) and is NOT due any furtehr tax relief even if a 40% taxpayer

If you have all that you need, it would be appreciated if you could rate me for the level of service I have provided, or click accept

Thanks

Sam

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