Pension contributions refunded

System
System Posts: 100,534 🤖 Admin 🤖
edited 12:08PM in AAT member discussion
I have a client who has left employment and had his occupational pension contributions refunded, less tax. Is any action required re his tax return?

Thanks

Dottie

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Pension contributions refunded

    Yes these would need to be entered onto your clients tax return.

    A refund of pension contributions is not normally subject to income tax on the individual receiving the refund. However, the pension scheme administrators would normally deduct tax from the refund at amount of 20% so this deduction would have to be taken into account when arriving at the balancing payment/refund due for the year.

    Kind regards
    Steve
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Pension contributions refunded

    I'm not sure that is correct.

    Net contributions to occupational pension schemes are not declared on the Tax Return (unless FSAVCs) it is all done via the payroll.

    If your client is a basic rate taxpayer then it makes no difference and I would not declare anything at all.

    If your client is a higher rate taxpayer then they may have received excessive tax relief as their taxable gross pay may now have been understated. I suspect, however, that the necessary adjustments would already have been made on their final pay run.

    Either way, I would not include it on the tax return.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Pension contributions refunded

    Dean, I was not entirely clear as to the situation
    which gave rise to my post.

    The client I had worked for the fire service and therefore the contribution were done through the payroll. The fire service pension managers had deducted tax at 20% in accordance with ICTA.

    As the pension had been done through the payroll (the guy was a higher rate taxpayer) we confirmed with HMRC that to tidy up all loose ends, it should be reported on the SA return which it was. I do agree that a basic rate taxpayer will not be affected. I would still, however, report it on the tax return for completeness if the taxpayer had more than one source of income which took them into higher rates, but I would not imagine there would be any recourse from HMRC if it was not reported.

    My scenario happened about 3 years ago and the legislation may have changed somewhat.

    Kind regards
    Steve
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Pension contributions refunded

    He was a basic rate tax payer for the years he was making his contributions to his NHS pension.

    Tax on his refunded contributions was at 20%.

    He is now self-employed, but still not earning enough for higher rate tax, so no action required.

    Thank you for your advice, which is much appreciated

    Dottie

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