Who must pay the pensions annual allowance tax charge

Question

Accepted Answer

The annual allowance tax is a charge which you must pay when you have gone above your annual allowance in a tax year.

You must work out how much you have gone above the tax allowance and if you have, how much the tax charge is.

If you meet certain criteria, your pension scheme must pay this charge for you if you tell them to, this is also known as mandatory scheme pays.

In some cases they may choose to pay the charge for you, even if they do not have to, this is also known as voluntary scheme pays. You will need to check if your scheme will do this.

If your scheme does pay the charge for you, they must reduce your benefits.

You must tell HMRC about the tax charge using a Self Assessment tax return by the deadline, even if your pension scheme pays it. If your scheme only pays some of the charge, you must pay the rest directly to HMRC.

If the tax charge is more than 拢2,000

You can tell your pension scheme to pay some or all of your annual allowance tax charge if:

your pension savings with that scheme are more than the annual allowance (currently 拢60,000) for that tax year
your tax charge is more than 拢2,000 for that tax year
you鈥檝e told them by the deadline of 31 July of the year after the following tax year

There may be some cases where your scheme does not have to pay all of your tax charge even if it is more than 拢2,000 and you will need to pay the rest of the amount.

You will need to tell your pension scheme how much you want them to pay for you by the deadline.

If you tell your pension scheme to pay the tax charge, you cannot change your mind. If the tax charge you need to pay changes, you can ask them to change the amount they鈥檙e paying.

How to tell your pension scheme to pay the tax charge

You must tell your pension scheme electronically or in writing and include:

your title
your full name
your address
your National Insurance number (or if you do not qualify for one, the reasons why not)
the tax year that the charge is for
the amount of tax charge that you want the scheme to pay
confirmation that you have worked out the tax charge at the correct rate
confirmation that you cannot cancel your request
confirmation that you know your benefits will be adjusted
confirmation that you have personally submitted the request or your signature and the date

If the tax charge is 拢2,000 or less

Your pension scheme can choose to pay all or some of the tax charge, but they do not have to. If your scheme does not pay the tax charge, you must pay it yourself.

If your pension scheme agreed to pay the tax charge but did not, you鈥檒l have to pay it, plus any penalties and interest if you鈥檝e missed the deadline.

You should check that your scheme has paid the charge on time, as you may have to pay interest for late payments.

What you need to check

If your pension scheme pays this tax charge for you, you鈥檒l need to check that they have reduced your benefits.

If your scheme does not reduce your benefits, you鈥檒l have to pay an unauthorised payment charge.

Filling in your Self Assessment tax return

Use the HS345 pension savings helpsheet to fill in your Self Assessment tax return.

You must make sure that:

you complete box 10 if you have a tax charge, even if your scheme pays some or all of it
if your pension scheme pays some or all of the tax charge, you put the amount they pay in box 11 on the SA101
you ask for your pension scheme鈥檚 Pension Scheme Tax Reference (PSTR) and put this in box 12 on the SA101
if more than one pension scheme is paying an amount of your tax charge, you fill in the 鈥榓ny other information鈥� box on page TR7 on the SA100

If you鈥檝e told HMRC your scheme will pay some or all of your tax charge, you need to make sure you also tell your scheme.

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