tax back on SIPP (HRT hmrc

a friend has asked me if a tax rebate is correct.

they are a high rate taxpayer, and paid £1,000 into their SIPP last tax year and received £250 tax relief paid directly into sipp 60 days later,

they wrote to HMRC stating they’d like to claim High rate tax (40% tax payer) refund on the £1k net.

HMRC have calculated tax return and stated they will send a cheque for £200 (over payment of tax)

is that right? she was expecting £250 ie 20% of gross contribution

the calculator on her sip, if you add £1000 (enter £1250 into calculator, it shows £1k paid in, and £250 (gov adds 20%), you can further claim extra tax relief £250 making your initial investment as £750

https://www.hl.co.uk/pensions/tax-relief/calculator?lumpsum=1250&salary=60000

confused, are all the SIPP providers calculators wrong, or has hmrc confused gross with net contributions

ps. numbers simplified for ease of math

I think you are right and they are wrong.

Depends on whether there are any other tax reliefs being claimed which could affect the total amount of tax paid at higher rate e.g. any salary sacrifices in place.

so £200 from hmrc is correct?

in this scenario contributed £1k less £200 = £800 for a £1250 investment, hence 800/1250 = 0.36

whereas if hmrc had refunded £250, then £750 / £1250 = 0.60 ie 40% tax relief £500 on £1250

@slackboy, not sure what she earns and pays into workplace pension.

I get that it will only lower tax on the element of high rate tax, so if she is only just over the threshold then tax relief is lower, but what if she paid on say £5k high rate tax, then would the £1k contribution be refunded 20% of net ie £200 or 20% of Gross (£1250) ie £250

all other things being equal, then you are right the tax relief on £1000 net should be £250 direct into pension and £250 from HMRC.

but the higher rate tax relief would be “upto” £250 and affected by the amount of tax actually paid at higher rate.

so  if she’d only paid £200 at higher rate, then that’s all she’d be able to claim back

Does the 200 hmrc calculate come from the difference between the basic and higher rate of tax, ie, 40-20% x 1000=200

@poolman possibly

and thanks @slackboy

(she only sent them net amount, it wouldn’t surprise me if they just read it as gross, hence calcs are wrong)

guess it needs an excel setup to crunch the numbers , she’s asked if I can work out how much she can put in for future years to eliminate her high rate tax ;0(

(face plant)

Does the 200 hmrc calculate come from the difference between the basic and higher rate of tax, ie, 40-20% x 1000=200

That’s not how percentages work……

£1000 is the 60% leftover after 40% tax has been deducted.

So the calculation is £1000/(1-0.4)= £1666

Or for 20% £1000/(1-0.2)= £1250

**update**

sent a query letter last week to ensure HMRC had used gross contributions and not the Net contributions.

As thought, HMRC had used the Net contributions for the tax calcs and so had underpaid, they have recalculated using the Gross Contributions, and an additonal cheque is due out in the post..   ;0)

lesson learned: only submit gross contributions or it’ll confuse..