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I contribute to a SIPP, and receive tax relief at the basic rate (HMRC adds 25% of the value of my contributions to it). I am wondering how best to record this in my books, and whether any accepted best practice for this exists. Should I record the Income Tax relief as:

  • a negative expense (a credit) in my Expenses: Income Tax account; or
  • a source of income, e.g. as a credit in an Income: Income Tax relief account; or
  • something else?
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    A more fundamental question maybe: how do you account for the contents of the SIPP itself? It's an asset, but £1 in your SIPP is not like £1 in your pocket as you can't access it until your late 50s and might have to pay some tax first. Nov 1, 2022 at 14:42
  • @GS-ApologisetoMonica I record it like I record the contents of my S&S ISA and other investments: as an asset denominated in the shares I hold, e.g. Assets: Vanguard: S&S ISA: VWRL, Assets: Vanguard: GIA: VWRL, etc. I think the question is fundamentally about whether tax relief is considered income or a negative expense, but I wanted to provide the context in which the question arose.
    – Jivan Pal
    Nov 1, 2022 at 14:47
  • So if you added up your net worth immediately after putting £1 net into your SIPP, you'd account for it as £1.25 in the SIPP? Nov 1, 2022 at 15:10
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    @DJClayworth Yes, there is £1.25 in the SIPP; HMRC refunds the Income Tax (the £0.25) that was deducted by my employer (20% of the gross £1.25 in wages), and I can use that money to buy shares of ETFs etc. once it arrives in the SIPP account.
    – Jivan Pal
    Nov 1, 2022 at 16:24
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    @C.S. Apologies for reviving a dead post, but I wanted to clarify how the money moves: Employer nominally pays me £1.25 gross wages of which they pay £0.25 directly to HMRC via PAYE, and I receive £1 in my bank account. I pay £1 into the SIPP, and about 2 weeks later HMRC pays £0.25 into my SIPP as a result, which my SIPP provider automatically invests in the same thing that I invested the £1 in.
    – Jivan Pal
    May 17, 2023 at 22:04

2 Answers 2

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You can do it either way:

  1. A negative amount on the expense "Income tax"
  2. A positive amount on an income category like "Income tax refund"

Which one you do depends on how you want to track your tax expenditure.

In case 1 the total of the category "income tax" will give you the amount you paid and was not refunded - i.e. the net amount you paid to HMRC. You will not be able to specifically find the amount you were refunded, or the amount you paid before refund, from the totals.

In case 2 the total amount you paid to HMRC will the total of the "Income tax category" minus the total of "Income tax refund" category. The totals of those give you the gross amount paid and the amount refunded respectively.

Which you use depends on whether you want to track the amount of the refund and/or the amount paid before refund separately. If in doubt case 2 is more flexible.

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  • Thanks for taking the time to answer. Sure, I could do it either way, and have been using method (1) so far, but my question basically boils down to, what is the conventional/standard way of doing this amongst UK accountants (or perhaps internationally, per something like the IFRS)?
    – Jivan Pal
    Nov 2, 2022 at 0:59
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    There is no standard for keeping personal accounts. Business accounting isn't on topic here. Nov 2, 2022 at 2:24
  • Ah okay, thanks.
    – Jivan Pal
    Nov 2, 2022 at 9:50
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I would treat this as income in a separate account (e.g. "Income: SIPP: Relief at Source"). Suppose you pay £1 from your pocket to your SIPP. That's an actual payment you made that you can track in the normal way and reconcile with bank statements etc. The 25p then appears in the SIPP by way of the claim the provider makes to HMRC, it never touches your pocket.

In contrast, suppose you become a 40% taxpayer. At that point, you might make a £1 payment to your SIPP, and the 25p still appears via Relief at Source, but and you claim another 25p as a tax refund that goes back into your pocket. If you already have an "Expenses: Income Tax" account then logically the latter 25p belongs as a refund there.

Another scenario might be salary sacrifice direct from your payslip to a pension organised by your employer. In that case you could simply treat the full gross amount as an payment from your salary. If you had a more sophisticated model of your finances you might choose to account for the tax+NI on your whole salary before sacrifice and then treat the reduction in tax+NI as refunds that reduce the net cost to you of the contribution.

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  • Thanks for this, though I don't understand the rationale behind treating relief at source and relief via self-assessment (for Higher/Additional Rate taxpayers) differently (assuming that I've understood you correctly and that's what you're suggesting). Wouldn't you treat both as income, or both as a negative expense?
    – Jivan Pal
    Nov 2, 2022 at 0:54
  • Regarding best practices, I was rather hoping there would be something in the IFRS or HMRC BIM, or something else that accountants generally refer to, that suggests/informs a standard way of handling this. As it stands, I have been classing it as a negative expense, but will probably switch to classing it as income just to make it easier to isolate/find those transactions.
    – Jivan Pal
    Nov 2, 2022 at 0:55
  • I guess a lot depends on how you actually already account for tax and I probably made some implicit assumptions there. Do you just think about your net income or do you account for your gross income and then treat tax as an expense? The reason I would treat the relief at source and via self-assessment differently is because the money flows differently - it's my point about being able to reconcile the income with your bank statements etc. Nov 2, 2022 at 11:16
  • I account for the gross, I record each pay period as a split transaction between Income:Gross pay (credit) and Assets:Bank account, Expenses:Income Tax, Expenses:National Insurance, etc. (debits), as it appears on my payslip, so reconciliation isn't an issue, as the amount debited to Bank account is what shows on my bank account statement.
    – Jivan Pal
    Nov 2, 2022 at 12:01

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