BBC expert says people can get ‘HMRC owed’ four years of back-payments | Personal Finance | Finance

A BBC financial expert has explained how people can get ‘free money’ in connection to their pensions and even get back payments for being unfairly taxed. BBC Morning Live Laura Pomfret told hosts Gethin Jones and Michelle Ackerly people are ‘not aware’ of tax relief which means in reality they get far more of their pay for themselves.

And she explained that people don’t realise how important it is to be paying into pensions. She said: “So many people are not aware of the tax relief that you can get on pension contributions. It feels like free money. And in a nutshell, typically, so when we earn an income, we pay income tax. But if we decide to put some of our income into a pension, the government rewards us by giving us our tax back.

“Obviously, it wants us to save for the future, wants us to invest for our retirement. And so you get your tax back. But so many people just think of a pension contribution as kind of going away in the background and don’t think about the benefits of it.”

There are two kinds of pensions, Ms Pomfret said and one means that people may in fact need to take action to get the benefits: “There’s one called a “net pay pension.” Now, this is where you get your relief before income tax is applied. So in that scenario, you’ve already had the relief, you don’t have to do anything, and you get it. But if you are – if you have a pension that’s what’s called “relief at source,” this is where you pay into your pension after your net pay. So if you’ve got a payslip, you would see it further down the list. And what this means is, you’ve paid tax on your income, it’s gone to HMRC through your payslip, and then you put money into your pension.”

She said that in that case people get tax relief but it’s done at source through the pension provider. For basic rate taxpayers – those earning under £50,570 she said people would get 100 per cent of their pay which goes into the pension. She said: “So let’s say you put £80 into your pension. The pension provider goes to the government and says, “Can we have 20% please?” And you get £20 in. So what’s happened is you’ve put £80 in, but all together you’ve got £100. And that’s the kind of free money concept.

“Now they only do that for the 20%, the basic rate of tax. If you are a higher rate taxpayer, or you pay additional rate tax – so if you pay 40% or 45% in England, Wales, or Northern Ireland – you could be missing out on that 20% or 25%, because the pension provider only ever claims basic. It is up to you to go and claim the extra.

“So this can catch people out, especially if you’re on the cusp – so if you might just nudge into that additional – those higher rate tax bands – or you may just never have been told. I myself went through this.”

And she explained she herself didn’t realise this could happen: “I didn’t know that this would happen. And then when I found it out, I went and claimed it back, and it can add up to hundreds or thousands of pounds for some people over a period of time. And you just don’t know about it. And so people could be sat with money with HMRC that they could go claim that’s theirs.”

In terms of what people need to do she explained: “It’s important to know whether you’re a net pay pension or a relief at source. What I don’t want to do is encourage people that are on a net pay pension to go ring HMRC. You’ve already had that relief, so check with your employer, check with your pension provider and see which one you are. If you are relief at source, which means you have paid tax on your income and then you’ve contributed to your pension, the first step is to check where you are at in terms of your earnings. Are you tipping into that 40% or 45% if you’re in England, Wales, or Northern Ireland? If you’re in Scotland, it’s one of the other rates: so your 21%, 42%, 45%, or 48%. So go check where you are at in terms of your earnings and what tax you pay.”

She said to be aware of which tax bracket people might be in as taxable income could include pension income, investment income, you could have rental income. “Lots of different forms of income can nudge you into that next tax bracket. And if that’s the case, check with your pension provider. Have a little log on online. Is only 20% going in? And that’s usually the case. And if that’s so, you could be in a position where you’re entitled to some tax relief.”

She said that people could potentially go back four years for back payments and that if someone calls up HMRC they would need the following details:

• Your National Insurance number (so they can connect it to you personally).
• Details of your pension and pension provider (or providers if you have multiple).
• Crucially, how much you’ve paid in and for what tax years.
• Proof of those pension contributions including payslips, and a statement from the pension provider.

She added: “But you’re going to need these amounts, because that’s how we kind of calculate it. And, crucially, you can often claim for previous tax years. So HMRC will typically let you go back four years after the end of the tax year that you’re talking about. So if this is you, or could be you, going back and doing a little bit of digging, a little bit of work could end up, you know, getting you quite a lot of tax back.

“The key thing is, this is usually not sorted automatically. You have to do something. It may be frustrating, but it’s worth having a little look or thinking about someone in your life. Do they know that they can do it? Because if you can, there’s a lot of money left on the table that’s free money.”

To claim tax relief on your private pension payments click here.