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Pension contributions and tax credits

If you pay into an occupational or personal pension you should enter the gross amount you pay in, including the value of tax relief.

Do not include pension contributions made by employers. All employer pension contributions are ignored completely in tax credits and should not be included in the amount entered for gross earnings or anywhere else in the calculator.

In an occupational pension the amount you pay in (normally a percentage of your gross earnings) already includes tax relief. However, if you pay into a Stakeholder or personal pension, or a Retirement Annuity Contract, you need to add on the tax relief that the government adds to your contributions.

Tax relief on personal pensions is normally paid directly by HM Revenue and Customs to the pension scheme at a rate of 20% of the gross contribution (for anyone below the higher rate band). You pay Income Tax on your earnings before any pension contribution, but the pension provider claims tax back from the government at the basic rate of 20 per cent. In practice, this means that for every £1 you pay into your pension you end up with £1.25 in your pension pot, so the amount to enter in the calculator is your net contribution multiplied by 1.25 (if you pay tax at the basic rate).

Gross pension contributions are deducted from pay before calculating earnings for the purposes of tax credits. The calculator will automatically deduct the amount you enter from your gross earnings.

Full relief is given for pension contributions, but only for payments made in the year; there is no provision for carry backs.