Using unused allowance (carry forward)

fuelcrusher

Hi all, just looking for a bit of confirmation and information.

It looks like this year (15-16) I will be needing to contribute over 40k into my pensions.

First I assume all calculations I make should include my own contributions AND my employers contributions (including under salary sacrifice).

Next I assume I need to look at my figures for 12-13 tax year?

So checking back, 12-13, my personal contributions were £9068.15 and employers £4973.30 so this gives me £35,958.55 in unused allowance. The extra I intend paying in this year will not be anywhere near this amount.

I don't know just how much extra I'll be contributing yet but lets call it 50k total (inc employers). So 10k extra.

Do I need to declare this carry forward use in any way? I do a self assessment does that cover it or do I need to record it anywhere?

One of the reasons I'm doing this is to retain my child benefit, getting harder to justify but it always comes to that last 10k taking it down from 60k to 50k being such a good deal.
Am I correct in that using this carry forward means all the usual calculations apply and taking my taxable salary down to 50k, by using the carry forward, means I will still be entitled to the full CB?

Thanks
Paul.

zagfles

fuelcrusher wrote: »

Hi all, just looking for a bit of confirmation and information.

It looks like this year (15-16) I will be needing to contribute over 40k into my pensions.

Are you aware of the shenanigans with the split tax year this year? This is likely to enable you to contribute more than you would have otherwise, if you have tax year aligned PIP.

First I assume all calculations I make should include my own contributions AND my employers contributions (including under salary sacrifice).

Yes. I assume it's a DC scheme not DB, because with a DB scheme different calculations apply.

Next I assume I need to look at my figures for 12-13 tax year?

So checking back, 12-13, my personal contributions were £9068.15 and employers £4973.30 so this gives me £35,958.55 in unused allowance. The extra I intend paying in this year will not be anywhere near this amount.

You should be OK then.

I don't know just how much extra I'll be contributing yet but lets call it 50k total (inc employers). So 10k extra.

Do I need to declare this carry forward use in any way? I do a self assessment does that cover it or do I need to record it anywhere?

You need to record it yourself in case HMRC query it. They get notified when you exceed the AA in a scheme. You don't have to tell HMRC if using carry forwards means no tax to pay, but I have seen advice stating that you should put it as a note in one of the comments boxes on the tax return. You don't have to, but you do have to have your calculation ready in case they query it.

One of the reasons I'm doing this is to retain my child benefit, getting harder to justify but it always comes to that last 10k taking it down from 60k to 50k being such a good deal.
Am I correct in that using this carry forward means all the usual calculations apply and taking my taxable salary down to 50k, by using the carry forward, means I will still be entitled to the full CB?

Thanks
Paul.

Yes.

fuelcrusher

Thanks very much for the answers.

Just one more thing, although I think it's been answered from the last question on my original post.

Doing some internet research this morning I came across one websites faq which had this:

Q. If a member hasn't paid the maximum tax relievable contribution in previous tax years can they use carry forward to pay contributions higher than 100% of earnings in this tax year?

A. No, it's unused annual allowance that's being carried forward, not unused tax relief. If Sally in the example above had unused annual allowance of at least £20,000 to carry forward, she could avoid the annual allowance charge. However if she had paid less than 100% of her earnings in previous years, that unused tax relief couldn't be carried forward to justify tax relief on member contributions of more than £60,000.


The line that had me a little concerned was the "it's unused annual allowance that's being carried forward, not unused tax relief".
Am I correct in thinking that I will still get the 40% tax back on these 'additional' contributions because my overall salary is still way above the total contribution for the year? There wouldn't seem much point doing this if that wasn't the case.

gadgetmind

Are you sure that the Pension Input Period for your scheme matches the tax year?

You can use any unused allowance for last three years, with this year's being used first, and then the oldest ones in order. Any allowance unused is lost under the "3 year rule".

You don't have to declare, but do keep meticulous records. You also need to know the exact dates of all contributions even if your PIP is aligned if your contribution date changes from month to month. I've had tax years with 10 contributions and ones with 14!

I do know people who just ignore PIP, treat everything as being in that tax year, and say they'll worry about if if HMRC comes knocking!

gadgetmind

fuelcrusher wrote: »

The line that had me a little concerned was the "it's unused annual allowance that's being carried forward, not unused tax relief".

Dunno why it concerns you. All they are saying is that you can't use carry forwards to put in more than 100% of salary. You put in what you want up to 100% of salary, you get all relevant tax relief. All carry forwards does is allow this "what you want" to be more than £40k.

fuelcrusher

gadgetmind wrote: »

Are you sure that the Pension Input Period for your scheme matches the tax year?

To be honest never heard of that term. All I've ever told hmrc is my contributions over the relevant tax year. I do get a letter each year from the pension management company at work stating the same 'tax year' contributions. They send these out so that we can just sign them and send them off but as I self assess I've never used them.

fuelcrusher

gadgetmind wrote: »

Dunno why it concerns you. All they are saying is that you can't use carry forwards to put in more than 100% of salary. You put in what you want up to 100% of salary, you get all relevant tax relief. All carry forwards does is allow this "what you want" to be more than £40k.

Yeah, I think I misinterpreted that.

Time to get the debit card out then.

Thanks.
Paul.

zagfles

fuelcrusher wrote: »

To be honest never heard of that term. All I've ever told hmrc is my contributions over the relevant tax year. I do get a letter each year from the pension management company at work stating the same 'tax year' contributions. They send these out so that we can just sign them and send them off but as I self assess I've never used them.

The PIP doesn't have to be the same as the tax year but often is. A scheme could eg have a PIP from 1 Jan to 31 Dec, in which case all contributions between eg 1 Jan 2014 and 31 Dec 2014 will count in the 2014/15 tax year and use that tax year's allowance, ie contributions in Jan-Mar 2014 would not count in the tax year they're made for the purposes of the AA (but would for tax relief!)

So you need to know your scheme's PIP. Sounds like yours is the tax year but best to make sure.

The govt are now changing the rules to align all PIPs with the tax year, and as a result there's a messy transition splitting this tax year into two (or for some people 3) PIP's. See https://www.gov.uk/government/publications/pensions-technical-note-transitional-provisions-for-aligning-pension-input-periods/pensions-technical-note-transitional-provisions-for-aligning-pension-input-periods

gadgetmind

fuelcrusher wrote: »

To be honest never heard of that term.

Not many people have, but it's important once getting close to max annual allowance, and critical if exceeding it using carry forwards. I found out about PIPs rather late in the day, beat accountant around the head, did hours of work myself, and we then resubmitted two years of tax returns. (He did extra work, plus an annual allowance and PIP modelling spreadsheet, which I now maintain myself.)

gadgetmind

zagfles wrote: »

The govt are now changing the rules to align all PIPs with the tax year

Yup, but I see company pension contributions hitting between 28th of month before and 8th of month after, so could still see "drift" between tax years.

I changed my PIPs to middle of month (not April!) a few years ago to make everything more predictable, and to tax year aligned a year back. My company have also (partly as a result of my nagging!) but in place better systems to ensure payments are made predictably.

fuelcrusher

So does this PIP only apply to the allowance/carry forward calculations or should you be using this also for declaring your pension contributions to reclaim the higher rate tax? I've just been telling hmrc my contributions April to March.