Has HMRC got my tax calculations wrong?

I was made redundant in January 2015 and given six months' pay in lieu. This would have taken me over the £150,000 earnings threshold for paying additional rate income tax, so I put the whole redundancy payout into my pension. This reduced my earnings for the 2014-15 tax year to £103,000.

On this basis, I calculate that the tax payable to HM Revenue & Customs (HMRC) is £29,577.80. I came to this conclusion because my salary is over £100,000 so my personal allowance is £8,500.

I have already paid £36,361.82 in tax for this year so my understanding is that I should get back £6,784.02, the difference between what I've paid and what I think I owe. But I spoke to HMRC and they seem to think I will only get back about £2,000. Can you shed any light on this?

Patricia Mock, director at Deloitte, says the answer depends on the amount put into your pension and whether this was made net of basic rate tax or gross. This would depend on the way in which the pension scheme operates, and should ideally have been made clear at the time the contribution was made.

You have indicated that the contribution was made gross. This means that the contribution should already have been taken into account in your calculation of net earnings of £103,000 for 2014/15. On that basis, your personal allowance would indeed be £8,500, because those earning over £100,000 lose their personal allowance at the rate of £1 for every £2 of earnings.

Tax on the resulting amount of £94,500 would be £31,427, as compared to the £36,361 paid, suggesting a refund due of £4,934. This assumes that you have no other income, such as interest income, dividends from shares or rental income from investment property.

This is different to the £2,000 you have been told by HMRC, and you should ask them to check the calculation. It is possible that you have paid more into your pension than the permitted annual maximum, which would reduce the refund due.

Graeme McColgan, financial planner at Million Plus Financial Planning, also picks up on this issue.

The annual allowance limits the maximum that any individual can put into a pension arrangement and attract tax relief to £40,000. If your pension contribution puts you in breach of the £40,000 limit you may no longer be able to receive tax relief on the entire pension contribution, which could materially affect the calculation.

A number of measures were announced in the 2015 Budget such as the new savings allowance. Which of the measures are dependent on whether the government gets re-elected or not?

<

The tabular content relating to this article is not available to view. Apologies in advance for the inconvenience caused.

The government announced it would create a new allowance which would take effect on April 6 2016, exempting the first £1,000 of savings income from any tax for basic rate taxpayers and the first £500 for higher rate taxpayers. This would save up to £200 off an individual's annual tax bill. It would not be available for additional rate taxpayers.

The aim was for the government to discuss implementation issues with the savings and investment industry, and with other interested groups, before introducing the necessary legislation in a subsequent finance bill.

Since then, of course, the personal savings allowance has disappeared from view in the dissolution of parliament and the preparations for the general election. Whether it eventually comes to fruition will depend on the composition of the next parliament.

The advice given is specific to the questions posed. Neither the FT nor the contributors accept liability for any direct or indirect loss arising from any reliance placed on replies.

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation