Higher rate contractors: Claim up to £400 in pension tax relief
Higher and additional rate contractors could be missing out on a significant tax refund because they aren’t claiming back the full tax relief on their pension contributions.
Richard Perch, who heads up the social work and healthcare division at Umbrella.co.uk said: “We think that this is the biggest tax relief that goes unclaimed by higher and additional rate contractors."
“Some higher rate taxpayers could be missing out on a tax refund of about £242 at the moment, and with the minimum pension contributions set to increase next April, contractors could soon be overpaying about £400.”
In this blog post, we explain how pensions tax relief rules apply to higher and additional rate contractors and how they can claim back tax relief.
When Umbrella.co.uk pays employees we deduct 3% of eligible earnings for the employee’s minimum contribution to the NEST workplace pension scheme.
We also deduct 2% for your employer deductions taking the total minimum contribution up to 5%.
However, when you pay your 3%, you are effectively only contributing 2.4% because you get 0.6% from the Government in the form of tax relief on your contribution.
This 0.6% represents 20% tax relief and it applies to anything earned over the NEST threshold of £6,032 but not anything earned over £46,350, when you pass the higher rate income tax threshold.
If you are a higher or additional rate taxpayer, you may be eligible for 40% tax relief on your 3% minimum contribution. You can only claim further tax relief (at the higher rate less the basic rate already claimed) through your self-assessment tax return.
Most UK workers are automatically enrolled into a workplace pension scheme by their employer.
Unless the employee opts out of the scheme in the first month, they will make contributions to their retirement pot from their pay. This contribution is supplemented by contributions from their employer and tax relief from the Government.
At present, the employee’s minimum contribution is 2.4%, the employer’s is 2% and the Government provides 0.6% in the form of tax relief. But this is set to increase next year.
From April 2019, the employee’s minimum contribution will be 4%, the employer’s will be 3% and the Government 1% - increasing the total minimum contribution from 5% to 8%.
For more help and advice, contact a member of our support team today. Call: 0800 121 6513.