Pension Tax Relief | Williamson Morton Thornton | Advisory, Tax ...

A number of employees may not be getting their higher rate tax relief on their pension payments.

To help you to determine whether your contributions are correct, we have highlighted below the two types of pension scheme that employers run:? A company Pension Scheme and a Group Personal Pension Scheme.

Company Pension Scheme

Contributions to this type of scheme are made GROSS for both employer and employee. Employee contributions to the pension scheme are collected from gross pay.

Contributions are then paid over to the pension scheme by the employer.? As the employees contribution is from gross pay there is no further tax relief available. It effectively will include either the basic rate, or higher rate tax that would be due.

Group Personal Pension Scheme (GPP)

Contributions to this type of scheme by the employee are taken from the employee?s net pay.? The contributions are then paid over to the pension administrator, who will allocate them to the individual pension arrangements.? Basic rate tax is reclaimed from HMRC and added to the employee contributions by the pension scheme.? If the individual is a higher rate taxpayer, they should receive a Personal Pension Contribution Certificate (PPCC) from the pension provider. Normally the higher rate relief can be given as a refund through tax coding, although it may also be paid as a lump sum.

It is necessary to claim back the higher rate tax relief through self assessment by preparing a tax return or contacting HMRC with a copy of your pension certificate and asking for the relief to be included in your code.

There are other significant differences: a company scheme must appoint trustees, who have responsibility for fund choices for the members of the scheme. ?This tends to result in a limited fund choice being offered. ?Under a GPP the fund choice is up to the individual.

Both types of arrangements can utilise salary sacrifice schemes to reduce National Insurance costs.

If you are unsure whether you are claiming the right amount of pension tax relief, please speak to our Senior Private Client Tax Manager, Paula Jeffs on 01727 838 255. ?Paula will be able to asses your individual situation and determine whether you are entitled to further tax relief.

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