Pensions are long-term savings plans with the aim of providing financial security in retirement. For self-employed individuals, the prime incentive for making contributions to pension schemes is tax efficiency, i.e. HMRC allows tax relief on qualifying contributions. Therefore, this guide will outline the steps on how to report pension contributions on self-assessment tax returns since it ensures that you receive the appropriate tax relief and avoid errors in your tax return.
Notably, for self-employed individuals and those with additional income sources, it is mandatory to report their pension contributions on a Self-Assessment tax return.
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Do self-employed people need to report pension contributions on a self-assessment tax return?
To start with, a self-assessment tax return is a system HMRC uses to collect income tax from individuals whose taxes do not get automatically deducted from their wages or pensions.
Let’s now discuss reporting the pension contributions on self-assessment tax returns. It is immensely important to highlight that just because a self-employed individual has set up or registered for a pension scheme does not mean they will necessarily have to enter their pension contributions during their self-assessment tax return.
Instead, the main takeaway is that you should declare your pension contributions on your tax return only if you are a high earner or are making sizable contributions to your pension.
For instance, if you are self-employed, working independently, and making payments into a private pension, you will not be required to declare any contributions if your income for the current tax year is below the basic rate ( 20%) income threshold of £50,270.
The reason for not reporting your pension contributions is that your pension provider can claim basic rate tax relief (called the relief at source) for you since the government provides you with tax relief at your highest rate of Income Tax. Thereafter, your pension provider can automatically add the claimed back amount to your pension pot.
However, if your income falls under the bands of higher or additional tax rates, you must claim the tax relief through your tax return.
In order to learn more about qualifying contributions for tax reliefs and income tax rates for which the tax reliefs are available, you can visit the government websites: Income Tax Rates and for Tax Reliefs
How to report pension contributions on self-assessment tax return?
After discussing the circumstances under which a self-employed needs or does not need to include their pension payments in their tax return, the following steps elaborate on how to report pension contributions on self-assessment tax returns, including:
Gathering relevant information:
Before you know how to report pension contributions on self-assessment tax returns, you must have the following details:
- Your total pension contributions made during the tax year.
- What type of pension scheme did you register for, such as a personal pension, workplace pension, or self-invested personal pension (SIPP)?
- Confirmation of whether contributions were made net or gross of tax relief.
- Pension provider statements or receipts.
To learn more about the types of pensions, read our blog:
How to set up a pension when self-employed in the UK?
Logging into HMRC’s online services:
If you are filing the self-assessment tax return online, you must sign into your HMRC account through HMRC’s official website. Nevertheless, if you have not registered for self-assessment with HMRC yet, it is compulsory that you become registered before the deadline.
After you have logged in to your HMRC account, go to the Self-Assessment tax return form (SA100). Thereafter, find the section related to pension contributions. It is typically found under:
- “Tax reliefs” for those with personal pensions.
- “Employment” if you have made contributions using a workplace pension scheme.
Entering pension contribution details:
Now comes the significant part of understanding how to report pension contributions on self-assessment tax returns. After locating the relevant section in the (SA100) form, you will now enter your correct pension contribution details.
There will be two scenarios here: whether contributions were made net or gross of tax relief.
First, if the contributions were made net of tax relief, most personal pensions would receive 20% basic rate tax relief at the source.
For example, if you contributed £8,000, and your pension provider adds £2,000. Consequently, the total contribution will become £10,000.
Now, you must enter the gross amount of £10,000 in the appropriate section of your Self-Assessment form.
Moving further, if the contributions were made Gross, meaning no tax relief was applied, some occupational pensions and self-invested personal pensions (SIPPs) do not receive tax relief at the source.
For this, you will enter the exact amount contributed, and HMRC will apply the tax relief accordingly.
Claiming additional tax relief (Higher and Additional Rate Taxpayers):
As previously mentioned, when a self-employed individual is a higher rate (40%) or additional rate (45%) taxpayer, they might be entitled to claim additional tax relief beyond the basic 20% applied at source.
Essentially, they will claim this extra relief through their Self-Assessment. Let’s understand this with the help of an example: Consider you contribute £10,000 and are a 40% taxpayer. Then, you can claim an extra 20% (£2,000) back via your tax return.
Reporting self-employed pension contributions:
To fully understand how to report pension contributions on self-assessment tax returns, you must know that for self-employed individuals, pension contributions must be reported as part of their income and tax deductions in their Self-Assessment form. To accomplish this task:
- You will first navigate to the “Tax Reliefs” section of your Self-Assessment form. To clarify, you will include your pension payments in the “Tax reliefs” section of your Self-Assessment tax return, particularly in box 1 of the “Additional information” pages (SA101). It is worth mentioning here that this box is for contributions for registered pension schemes where your pension provider can claim the basic rate tax relief.
- Next, you will enter the total gross amount of pension contributions you made during the tax year.
- Lastly, you must ensure that you include all payments, even those made in lump sums, to maximise tax relief.
Learn more about the self-assessment form (SA101) via the government website.
Submitting your tax return before the deadline:
It is necessary that you submit your self-assessment tax return on time to ensure you will not face the consequences of HMRC’s penalties. More importantly, the deadlines for filing your self-assessment tax return are:
If you are submitting your tax return in paper form, you must submit it by midnight 31 October 2024.
However, if you want to submit an online tax return, you must submit it by midnight 31 January 2025. It signifies that you make the Online tax return submission for the previous tax year.
Kindly keep visiting the government website to stay updated regarding the self-assessment tax return.
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Maintaining records for future reference:
Eventually, after you have submitted your tax return, it is crucial to retain copies of your pension contribution statements and acknowledgement of submission from HMRC. Besides, you should also keep any correspondence pertaining to tax relief claims as proof against any discrepancy in future.
Conclusion:
The essence of the entire discussion is that learning how to report pension contributions on self-assessment tax returns is unarguably vital for self-employed individuals to claim tax relief effectively.
By comprehending the different types of contributions and entering the correct figures, you can not only ensure compliance with HMRC regulations but can also elevate your tax benefits. Lastly, it is advised that you regularly review your pension contributions and often visit the HMRC website to manage your tax liabilities efficiently.
Disclaimer: The information provided on AccountingFirms.co.uk is for informational purposes only and should not be considered as financial advice. Always consult with a professional accountant to ensure compliance with UK laws and regulations.