Tax Contributions & Relief

Question 1

‘Gross’ explanation:

Answer 1

‘Gross’ means the total or whole amount of something.

‘Gross’ is always a bigger number than net.

Associate the lengths of the words to the amounts of money they refer to. (‘Gross’ is the bigger of the two words)

Question 2

‘Net’ explanation:

Answer 2

‘Net’ describes the total after all expenses, taxes, and deductions have been taken into account.

‘Net’ is always a lower number than ‘Gross’

Associate the lengths of the words to the amounts of money they refer to. (‘Net’ is the smaller of the two words)

Question 3

‘Net Pay Arrangement’ explanation:

Answer 3

In a ‘net pay’ scheme, 100 per cent of the employee contributions are deducted from the employee’s gross salary. This means that the employee pays tax on their salary after their pension contribution is deducted.

In other words, the employee pays tax on a salary which is ‘net’ of their pension contribution, meaning that they automatically receive tax relief at their highest rate of income tax.

Question 4

What types of schemes use ‘Net Pay Arrangement’?

Answer 4

• Occupational Schemes
• Group Schemes

(Employee schemes)

Question 5

Occupational ‘Net Pay Arrangement’ example:

Answer 5

Salary of £60,000 a year.

10% paid into pension each year (£6,000)

£6,000 for income tax purposes is taken out your gross pay.

You then are paid the residue (£54,000) and that is then what is liable for income tax.

The ‘Tax Relief’ is in the form of by paying the contributions gross you are not paying tax on that money (£6,000)

Question 6

‘Relief at Source’ explanation:

Answer 6

Personal pensions paid net of basic rate tax.

Meaning the member pays 80% of the intended contribution into the pension.

Basic tax relief (20%) is then automatically added to your pension contributions

Question 7

Under a ‘Net Pay Arranagement’ how does an employer add their contributions and send to the pension?

Answer 7

Via Direct Debit / BACS

Question 8

What types of schemes does ‘Relief at Soure’ relate to?

Answer 8

Personal Pensions

Question 9

Income Tax relief on contributions to a registered pension scheme is granted to those known as:

• A. Appropriate individuals
• B. Relevant UK individuals
• C. Appropriate UK individuals
• D. Allowable individuals

Answer 9

B. Relevant UK individuals.