I wonder if anyone can help clarify something for me. I don’t think I’m that thick but I’m finding it very hard to understand a situation that’s arisen.
The background is:
I’m lucky enough to have a job and a decent occupational pension scheme. I’m paid a monthly salary and tax is deducted via PAYE. I’m getting to an age when pensions are becoming sexy, so for a few years, I’ve also paid a regular monthly amount into a Local Government Additional Voluntary Contributions (AVC) plan administered by the Prudential. The AVCs are deducted automatically from my salary.
I do this as I’m told it’s tax-efficient: the AVCs are deducted from my taxable pay, and when I retire, I can take up to 100% of my plan as a tax-free cash lump sum.
Because of the recession and the public sector generally tightening its belt, my salary has been frozen for many years now. I don’t get a cost-of-living rise or any other sort of rise. The only additional payment I get is an annual performance-related payment (PRP) which is taxable.
A few months ago, I decided to make an extra lump sum contribution of AVCs from my May salary in order that some of the (anticipated) PRP could be deducted from my taxable pay and therefore less of my PRP being swallowed up in tax.
The problem
The PRP duly came through in my May payslip, however the lump sum AVC hadn’t been deducted, only the regular monthly amount. I queried it with my employer’s Pensions section and received an explanation and apology – the instruction from the Prudential was received but due to an oversight, the additional AVC hadn’t been deducted. The May payroll has closed and so the payslip can’t be re-run.
The Pensions person offered to collect the extra deduction from my June salary, and said they’d spoken to Payroll who’d confirmed that “I will receive the same tax relief as I am on a cumulative code.”
My query (at last)!
I’ve not come across the term ‘cumulative code’ before and I’m loathe to nod and say to my employer, “Yes, go ahead – deduct it from my June salary” without understanding it. For all I know, they don’t understand things either!
I’ve Googled the term and read the HMRC website, but I still don’t know whether it will mean that I’m not out of pocket as a result of the lump sum AVC not coming out of my May salary.
I don’t think I’m particularly thick, but my mind isn’t too agile when it comes to figures and money. This is how my simple mind sees it:
1. In May, due to the full whack of the PRP being liable for taxation, I paid loads more income tax than usual because there was more taxable income.
2. If, in June, the lump sum AVC (c £1000 less than the extra PRP awarded in May) is deducted from my salary, the amount of tax paid will be less than usual. But surely that won’t be equal to the amount of tax that I “overpaid” in May as a result of the lump sum AVC not being deducted?
I hope someone can help me understand things.
Thank you in advance.
The background is:
I’m lucky enough to have a job and a decent occupational pension scheme. I’m paid a monthly salary and tax is deducted via PAYE. I’m getting to an age when pensions are becoming sexy, so for a few years, I’ve also paid a regular monthly amount into a Local Government Additional Voluntary Contributions (AVC) plan administered by the Prudential. The AVCs are deducted automatically from my salary.
I do this as I’m told it’s tax-efficient: the AVCs are deducted from my taxable pay, and when I retire, I can take up to 100% of my plan as a tax-free cash lump sum.
Because of the recession and the public sector generally tightening its belt, my salary has been frozen for many years now. I don’t get a cost-of-living rise or any other sort of rise. The only additional payment I get is an annual performance-related payment (PRP) which is taxable.
A few months ago, I decided to make an extra lump sum contribution of AVCs from my May salary in order that some of the (anticipated) PRP could be deducted from my taxable pay and therefore less of my PRP being swallowed up in tax.
The problem
The PRP duly came through in my May payslip, however the lump sum AVC hadn’t been deducted, only the regular monthly amount. I queried it with my employer’s Pensions section and received an explanation and apology – the instruction from the Prudential was received but due to an oversight, the additional AVC hadn’t been deducted. The May payroll has closed and so the payslip can’t be re-run.
The Pensions person offered to collect the extra deduction from my June salary, and said they’d spoken to Payroll who’d confirmed that “I will receive the same tax relief as I am on a cumulative code.”
My query (at last)!
I’ve not come across the term ‘cumulative code’ before and I’m loathe to nod and say to my employer, “Yes, go ahead – deduct it from my June salary” without understanding it. For all I know, they don’t understand things either!
I’ve Googled the term and read the HMRC website, but I still don’t know whether it will mean that I’m not out of pocket as a result of the lump sum AVC not coming out of my May salary.
I don’t think I’m particularly thick, but my mind isn’t too agile when it comes to figures and money. This is how my simple mind sees it:
1. In May, due to the full whack of the PRP being liable for taxation, I paid loads more income tax than usual because there was more taxable income.
2. If, in June, the lump sum AVC (c £1000 less than the extra PRP awarded in May) is deducted from my salary, the amount of tax paid will be less than usual. But surely that won’t be equal to the amount of tax that I “overpaid” in May as a result of the lump sum AVC not being deducted?
I hope someone can help me understand things.
Thank you in advance.