AVC and income tax relief (net pay arrangement)

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NY_Resident

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I am planning on making a one-off AVC in June which will be within my age limit max contribution applied to total earnings for 2025 (i.e. to 31/12/25), but which will exceed the limit based on the same age related limit applied to June YTD earnings. Does Revenue permit my company / payroll provider to give me full income tax relief on the AVC contribution in June........or only gradually as my total payroll earnings permit between now and year? I will be funding the AVC from a bonus payment in June.

Thanks
 
I would have thought that your payroll provider could tweak the payroll system to enable this to happen, however the concern would be if for whatever reason your earnings reduced/ceased for the remainder of the year and therefore they or your employer may not want to facilitate this.

There is nothing to stop you starting an AVC in June with the initial amount being withing your max age limit contribution based upon your cumulative YTD earnings at that point and then making monthly AVC contributions for the remainder of the year (assuming that you save the balance of your additional net pay from your bonus to assist with this). Ultimately you will end up with the same cumulative net pay and AVC contribution for the year.
 
LL???? said:
would have thought that your payroll provider could tweak the payroll system to enable this to happen,
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An employer cannot interfere with an employee's tax credits or cutoff point that are specified by Revenue for payroll purposes. Such particulars are strictly a matter between the employee and Revenue.

Any such interference would constitute a form of fraud.
 
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NY_Resident said:
Does Revenue permit my company / payroll provider to give me full income tax relief on the AVC contribution in June........or only gradually as my total payroll earnings permit between now and year?
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You will receive it gradually. Your annual tax credits are divided by 12 and applied monthly, so you will receive half the relief at June and 1/12th over each of the months of July to Dec.
 
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T McGibney said:
Any such interference would constitute a form of fraud.
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Apologies, you are correct, I was thinking back to the pre RPN days when there was a greater degree of flexibility in the processing of payroll, but not for one minute am I suggesting or condoning any potential fraudulent activity.
 
Have you done an AVC for 2024 earnings to your max? Does not make sense to let this lapse before 2025s AVC.
 
I'm not sure my initial post was clear enough and may have been misinterpreted, so I'll do this by way of a hypothetical example.

Lets say my annual base salary is €60,000
I receive a bonus of €50,000 in June 2025
I wish to pay an AVC of €27,500 in June 2025 (25% x rem limit of €110k...which I will have earned by 31 Dec; assume 25% is my relevant % based on age)
However, by 30 June 2025, my actual earnings YTD will only have been €85,000

Question is: Can I get relief at source (net pay arrangement) for an AVC of €27,500 or only on 25% of YTD pay (25% x €85,000 = €21,250)

It suits me now to put it all through in June given the bonus payment.

So unless I'm misunderstanding the point, I'm not asking about messing around with monthly standard rate cut-offs or credits. My monthly pay already exceeds these amounts.

Thanks for any help.
 
NY_Resident said:
Question is: Can I get relief at source (net pay arrangement) for an AVC of €27,500 or only on 25% of YTD pay (25% x €85,000 = €21,250)
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I believe that you'll get the latter and then adjustments to your credits and standard rate cutoff point will give you relief on the balance over the remaining months of the year on a pro-rata basis. Maybe talk to your payroll people if necessary?
 
NY_Resident said:
Question is: Can I get relief at source (net pay arrangement) for an AVC of €27,500 or only on 25% of YTD pay (25% x €85,000 = €21,250)
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Neither. You can get relief at source on €13,750 (€27,500 x 50%) because you've only earned half your annual tax credits at June.

NY_Resident said:
So unless I'm misunderstanding the point, I'm not asking about messing around with monthly standard rate cut-offs or credits
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Your annual tax credits will increase by €5,500 (€27,500 x 20%) and your standard rate cut off will increase by €5,500 €27,500. That's how the relief on the remaining €13,750 is earned, your net pay will be higher in July to Dec.
 
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Corola said:
increase by €5,500 and your standard rate cut off will increase by €5,500 (€27,500 x 20% for each).
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Thanks for the response @Corola. Across the full year, I should receive tax credit of 40% x €27,500 = €11,000. Agreed?

In June payroll, looks like I will get €5,500 of this relief......with balance being spread over July - Dec

But I am struggling with the maths you have suggested. A tax credit of €5,500 along with an increase of €5,500 in standard cut-off will only deliver €5,500 + €5,500 x 20% = €6,600 of income tax relief

What am I misunderstanding?
 
NY_Resident said:
What am I misunderstanding?
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Maybe this old thread might help?

How do revenue give tax credits for personal pension?

I was checking my tax credits for 2008 on ros.ie and it seems that revenue have given me a tax credit for my monthly pension premiums though not for the full amount (the premiums are within the revenue percentage limits for my age) but they have also increased my SRCOP and together with the tax...
www.askaboutmoney.com
 
My understanding...
  • Gross income (base + bonus) = €110K
  • Max age related tax relief amount = €110K x 25% = €27.5K
Tax relief granted by way of...
  • Increase to the SRCOP of €27.5K (so that the pension contribution amount of €27.5K will be subject to 20% rather than 40% tax)
  • Standard rated tax credit of €27.5K x 20% = €5.5K which cancels out the 20% tax that you would otherwise have paid on €27.5K
  • Effective tax on the €27.5K = zero
 
Bingo @ClubMan! That's the missing piece of the methodology, so now I understand. Thanks for that.

Last question - re the approach - is this (a) a Revenue mandated / min compliance approach, or (b) common payroll practice?
 
NY_Resident said:
That's the missing piece of the methodology, so now I understand. Thanks for that.
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You're welcome. Every time this comes up I have to do a worked example to understand it again myself!

(BTW I asked ChatGPT and it got it completely wrong so even though I do find it useful it really has to be used with caution!)
 
NY_Resident said:
Last question - re the approach - is this (a) a Revenue mandated / min compliance approach, or (b) common payroll practice?
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Not really sure what you mean but, in your case, if you report a €27.5K pension contribution to Revenue then they should adjust your SRCOP and tax credits as I've outlined above and those details should be fed back to your employer for payroll purposes.
 
ClubMan said:
(BTW I asked ChatGPT and it got it completely wrong so even though I do find it useful it really has to be used with caution!)
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lol - the confidence with which it brings forth a BS response reminds me of some of the folks i used to work with in the corporate world.... [no offence intended to anybody.....but for those around long enough in that world, you'll know what i mean]

I've also noticed that it's dialled way back in being apologetic when you point out the errors!
 
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