Do I Deduct Pension Contributions For Tax Credits?

If you are wondering whether or not you should deduct your pension contributions from your income for a Tax Credits claim, you will find the answer to your question in the blog post below. In addition to this, we will also explore how deductions are calculated from your income as well as which elements can be deducted for a Tax Credits claim.

Do I Deduct Pension Contributions For Tax Credits?

The answer to this question depends on whether you are claiming Working Tax Credit or Child Tax Credit. If you are claiming Working Tax Credit, then you may be able to deduct pension contributions from your income. 

This is because Working Tax Credit is based on the income you receive from working and pension contributions can be deducted from your income before your entitlement to Tax Credits is calculated. However, it’s important to note that there are limits on the pension contributions that can be deducted.

If you are claiming Child Tax Credit, on the other hand, you cannot deduct pension contributions from your income. This is because Child Tax Credit is based on your total income, including any pension contributions that you make. Therefore, if you deduct pension contributions from your income, you will be reducing your entitlement to Child Tax Credit.

It is also important to note that if you are claiming Tax Credits and you are in a workplace pension scheme, your employer may also be contributing to your pension. In this case, you should not deduct your employer’s contributions from your income when calculating your entitlement to Tax Credits.

If you are unsure about whether you should deduct pension contributions from your income when claiming Tax Credits, it’s always best to seek professional advice. An accountant or tax advisor will be able to provide you with specific guidance based on your individual circumstances and help you to make informed decisions.

How Do I Deduct Pension Contributions For Tax Credits?

How you deduct your pension contributions as an indicator of your total income for Tax Credits depends on whether your pension contributions are made from your gross salary (before tax is deducted) or your net salary (after tax is deducted).

In either case, you should first calculate the sum of your (and your partner’s income) including the following sources of income:

  • employment income
  • social security income
  • student income
  • investment income
  • property income
  • foreign income
  • notional income

Then, if your pension contributions are made from your net income or taxable income (after tax and national insurance contributions are deducted), you can simply deduct the gross amount from your taxable income. 

On the other hand, if pension contributions are made from your gross income (before the deduction of income tax and national insurance contributions), you will deduct the net amount of your pension contribution.

You can use this working sheet for Tax Credits relief for your calculations.

Should I Make Any Other Deductions From My Income For Tax Credits?

If you are claiming Tax Credits, there are several deductions you may be able to make from your income. These include the following:

  • Work-related expenses: If you incur expenses for work, such as travel costs or equipment, you may be able to deduct these expenses from your income. 
  • Pension contributions: If you contribute to a pension, you may be able to deduct the amount you contribute from your income.
  • Gift Aid donations: If you make a donation to a charity through the Gift Aid scheme, you may be able to deduct the amount of the donation from your income.
  • Trading losses: If you are self-employed and incur trading losses, you may be able to deduct those losses from your income.
  • Property losses: If you have rental income and incur losses, you may be able to deduct those losses from your income.

It is important to note that not all deductions will affect your tax credit entitlements. Some deductions, such as rental losses, may only affect your tax liability.

Conclusion:

In conclusion, whether you should deduct pension contributions from your income when claiming Tax Credits in the UK depends on the type of tax credit you are claiming. If you are claiming Working Tax Credit, you may be able to deduct pension contributions from your income, but there are limits on the amount that can be deducted. If you are claiming Child Tax Credit, you cannot deduct pension contributions from your income. If you are unsure about what to do, it’s always best to seek professional advice.

References:

Pension contributions and Tax Credits

Working out your income for tax credit claims and renewals – GOV.UK

Calculating Tax Credits income

What counts as income for Tax Credits?