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Pension contributions - net pay/relief at source problem

  • Member
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  • 10 posts
  • # 118736

I have recently discovered that a new client's payroll has been set up incorrectly - pension contributions have been set at 'Relief at Source' rather than 'Net Pay'. This has been the case since Feb 2018.

As a result, they have not received tax relief on any pension contributions; how do I correct this??

Has anyone had any experience of having to rectify this and, if so, how did they do it?

Many thanks in advance!

  • Fellow PM.Dip
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  • 105 posts
  • # 118738

Hi KLB,

My understanding is that if the payroll calculations are done as 'relief at source', tax relief has been given to the employee.

If the pension company has received these gross payments as net payments, they will have also claimed tax relief on the payments.  So it seems to me the tax relief may have been received twice.

I would suggest contacting the pension provider to ask their advice in the first instant.  Then possibly HMRC if prior year payroll adjustments are required.  I did have one which had been calculated incorrectly and overpaid contributions, and the pension provider explained that all contributions received had been invested, and would not be changed.  

Hope this helps,

Fiona

  • Member
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  • # 118748

Hi Fiona,

Thanks for your reply.

The payroll is processed in FreeAgent and weirdly, having pension contributions set as 'Relief at Source' means that they are deducted from their net pay, rather than from their gross pay!

So they haven't received any tax relief since 2018; the full pension contribution has been invested, so it's just that their income tax has been overstated.

Assuming that they would have received the basic 20% tax relief, would it be reasonable to calculate this as the amount of tax overpaid?

I'm guessing I'm going to have to approach HMRC to try and resolve this, but Lord knows how long this will take!

Thanks again,

Karen

  • Fellow PM.Dip
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  • 105 posts
  • # 118749

Hi Karen,

I think my answer added to the problem!

Relief at source is where the employee pays 80% of the premium from and the pension company claims the other 20% from the government.  It is deducted from net pay (hence the confusion).  So Freeagent is doing this as instructed.

The difference will be that too much tax has been paid to HMRC (as you say, tax overstated), but also, not enough contribution has gone into the pension scheme.  I guess you are therefore looking at EYUs and an extra payment to the pension scheme.

Fiona

 

  • Member
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  • 10 posts
  • # 118757

Thanks Fiona and no, don't worry, it's confusing enough so you haven't added to it!

Neither the pension provider or software support can help, so I'm currently waiting to speak with HMRC....

Wish me luck!!

Thanks for taking the time time to reply - much appreciated. Smile



Edited at 08 Jun 2020 09:50 AM GMT

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