Ive tried the other sites

System

hi folks ive tried this question on the general & payroll forum but to no avail- Pensions- when you want to claim back on a tax return due to being a 40% tax payer how does this calc out?
if you contribute 10% i would calc this on basic pay ie. 1,000x10%=100then divide by 100x78 as the 22% is made up by the government( correct me if im wrong)then if a 40% payer contributes the same calcs are the same yet a repayment can be claimed.
Ive looked on some websites and the only thing i can find is 60-22-18 ratio does this mean all high payers can reclaim 18% on conts made is this based on 60% of conts or 1oo% Please help!!

System

Re:Ive tried the other sites

The basic rate band is extended by the amount of gross pension contributions to a personal pension, effectively achieving the additional 18% relief.

With occupational pensions, the pension is deducted at source and the relief is obtained at source. Therefore, the gross pay will exclude the pension contributions and no further relief is available.

System

Re:Ive tried the other sites

Hi Michael, sorry if i seem a bit thick- pensions are not my forte! can you try and explain in lamen terms so i can get my head round this -the pensions in question are stakeholders does that have any relevance.
thankyou ne

System

Re:Ive tried the other sites

You'll need to check with stakeholder pensions. They can be either personal (paid by the individual) or occupational (paid through the employment).

Also, you aren't clear as to whether this is paid through the payroll or privately.

If it's paid through the payroll, then it's not a problem, unless the 40% is caused by non-payroll income.

1. Let's assume salary is enought to take the employee into the 40% band. Then the calculations are done via the payroll and there's no problem.

2. If the pension is paid through a non-40% payroll, then it's likely that 22% relief has been claimed (check with the pension company) and the other 18% is claimed through the tax return.

3. If the pension is paid privately, then relief probably needs to be claimed through the tax return.

The key question is whether the pension is paid from gross or net salary.

Let's say it's paid privately. That means it's paid from net pay. Therefore, a payment of £780 has already had 22% tax deducted. The gross payment was £1000, or, for self-employed, not taxed.

Assuming that this is a tax return for 2005-06, the adjustment made is that the Basic Rate band is extended by the gross value of the payment; in this case, £1,000, making the Basic Rate band end at £(32,400 +1,000) = £33,400. Therefore, when calculating the tax due, the 10% band is charged on £2,090. 22% is charged on £30,310. Finally, 40% is charged on £(gross income - 33,400). [Normally this would be £(gross-32,400).]

In this way, the 40% relief has been claimed on the gross pension payment of £1,000.