Clarification On Carry-Forward

wary

A general question about carry forward, please.

I pay contributions direct from my own limited company. If this exceeds the limit for the tax year (ordinarily £40K) but I have an unused allowance from a previous year that can be carried forward to cover it, does anything need to be done to make clear that I am using this and haven’t exceeded the threshold … in order to avoid being unduly financially penalised?

For example, does my pension provider (L&G) need to explicitly be made aware? Or do I need to declare something on my PTR (even though these contributions are not normally declared here)?

Even with the clock having effectively been re-set on 9 July, my contributions from then up to the end of this tax year will exceed £40K, albeit only by £500 and I have carry-forward even from 2014/15 to cover this. But do L&G need to explicitly be made aware that this excess is simply making use of unused limits from the previous tax year?

Thanks

kidmugsy

Excellent question. I'd like to know too. Come on, you experts, let's be having you.

greenglide

These are employer contributions, I though that these are not limited by the £40k limit. Certainly carry forward is not relevant?

Judwin

kidmugsy wrote: »

Excellent question. I'd like to know too. Come on, you experts, let's be having you.

I'm not a former drip under pressure, but III have the following form that you have to complete if you exceed the yearly limits


http://cdn1.iii.co.uk.s3.amazonaws.com/II/Jan2016/SIPPForms2016/12.II_SIPP_Carry_Forward_Contributions_FORM12.pdf


Cheers
Judwin

wary

greenglide wrote: »

These are employer contributions, I though that these are not limited by the £40k limit. Certainly carry forward is not relevant?

Just done a quick Google ...

"Individual, employer and third party contributions all count towards the annual allowance."

"The annual allowance applies across all of the schemes you belong to, it’s not a ‘per scheme’ limit and includes all of the contributions that you or your employer pay or anyone else who pays on your behalf."

You may be thinking of restrictions based on not exceeding one's salary, which do not apply to company contributions.

Daniel54

wary wrote: »

Even with the clock having effectively been re-set on 9 July, my contributions from then up to the end of this tax year will exceed £40K, albeit only by £500 and I have carry-forward even from 2014/15 to cover this. But do L&G need to explicitly be made aware that this excess is simply making use of unused limits from the previous tax year?

I can only speak from experience when ,in 2012,I used carry forward to substantially exceed the annual allowance,having had to spend more than a little time working past contributions across the relevant pension input periods.

As the contribution was fully in accordance with the rules,I didn't specifically inform the pension provider ( Scottish Widows ) and claimed back the excess tax relief through self assessment without any problem

About a year later SW wrote to me saying I had potentially contributed too much in 2012.The letter did not request a reply and I let the matter lie.

I don't believe there is any obligation to inform your pension provider,but you might wish to check with L&G in case their internal rules are different to SW.

zagfles

wary wrote: »

A general question about carry forward, please.

I pay contributions direct from my own limited company. If this exceeds the limit for the tax year (ordinarily £40K) but I have an unused allowance from a previous year that can be carried forward to cover it, does anything need to be done to make clear that I am using this and haven’t exceeded the threshold … in order to avoid being unduly financially penalised?

No. See http://www.hmrc.gov.uk/manuals/ptmanual/ptm056200.htm

zagfles

greenglide wrote: »

These are employer contributions, I though that these are not limited by the £40k limit. Certainly carry forward is not relevant?

Yes employer contributions most definitely do count towards the annual allowance! Otherwise everyone would be able to get around it with sal sac!

wary

zagfles wrote: »

No. See http://www.hmrc.gov.uk/manuals/ptmanual/ptm056200.htm

Thanks for confirming that I don't need to inform HMRC. I guess the wider question is whether I need to make my pension provider aware that I'm making use of carry-forward rather than exceeding my annual limit?

zagfles

wary wrote: »

Thanks for confirming that I don't need to inform HMRC. I guess the wider question is whether I need to make my pension provider aware that I'm making use of carry-forward rather than exceeding my annual limit?

No. I think they have to tell HMRC and warn you. But you don't need to tell them you're using carry forwards, they won't tax you or anything (unless you ask them to).

System

There are two allowance aspects to employer contributions:

1) Your personal limit, which as discussed is £40,000

2) tax relief, which is claimed by the employer, not the employee, as an offset against corporation tax.
There is no tax relief limit for the employer, as long as all the expenditure is a proper business expense. Thus a masive contribution in one year making full use of carry-forward could potentially still attract tax relief for the company.
But you may need accountant's advice if stretching the point too far, eg making payments to former director or director's nominally-working spouse.