Exceeding £40,000 annual allowance

Sterlingtimes

What happens when a £40,000 allowance is exceed in a tax year? Does the Revenue & Customs apply a penalty at the moment the amount reach £40,001? Does the Revenue & Customs automatically calculate the cumulative total under n preceding tax years? Is it left for the individual to make a case to the Revenue & Customer that the allowance from previous years has not been fully utilised?

kidmugsy

I think all you need to do is put your records in order so that if HMRC enquire you can demonstrate that you had adequate allowance to carry forward. I'd better admit, though, that this isn't a problem of which I have first hand knowledge.

robin61

kidmugsy wrote: »

I think all you need to do is put your records in order so that if HMRC enquire you can demonstrate that you had adequate allowance to carry forward. I'd better admit, though, that this isn't a problem of which I have first hand knowledge.

Yes I believe this is right. When I look at the annual statement I get from my employer it tells us there is no need to contact HMRC if you can see you have enough carry forward from previous years.

Spidernick

Agreed, but a white-space note on your tax return detailing the brought-forward allowance might be a good idea to minimise the possibility of an audit into your tax affairs.

Sobryma

I believe you have to 'fess up' on this, I remember a disclosure on my tax return a year or two back. Your pension provider may well let you know when more than £40k has been put into your pension - ours does. Remember as long as you been in a pension scheme for the 3 prior years you can carry forward unused annual allowance (well as off today - maybe not later this week once Mr Osborne has spoken)...

Snakey

I looked this up a while back. You don't have to put it on your tax return if you have enough brought forward relief.

Be aware though that the pension fund provider has to make a report to HMRC of everyone putting in more than the annual allowance for the current year. So as Spidernick says, it's possible that it could lead to an enquiry - but presumably there'll be quite a few above £40k in the current year because of the changes in the summer budget, plus I think it's the first year they've had to make these reports so HMRC may well not have put any particular resources in place to review them (I bet the computer system doesn't do it automatically), so if there's ever a year it'll go through on the nod it'll be this year.

robin61

I just wonder how they would ever find out if you were contributing to more than one pension scheme and kept both under the £40k annual allowance. Obviously best not to risk it but how they could possibly check ?

grey_gym_sock

robin61 wrote: »

I just wonder how they would ever find out if you were contributing to more than one pension scheme and kept both under the £40k annual allowance. Obviously best not to risk it but how they could possibly check ?

i think pension providers report all contributions to HMRC, not just if it's over £40k per provider.

kidmugsy

robin61 wrote: »

Obviously best not to risk it but how they could possibly check ?

Your NI number would be the give-away. Then you could look forward to everything you ever submit in the future being inspected very carefully.

jamesd

Tax return instructions say do not report if you have allowance to carry over, only if you have exceeded that limit, in which case you must report the amount above the annual allowance and all carry forward available.

Sterlingtimes

jamesd wrote: »

Tax return instructions say do not report if you have allowance to carry over, only if you have exceeded that limit, in which case you must report the amount above the annual allowance and all carry forward available.

Thank you, James and other posters.

This clarifies the position that there is no great formality to this: just a little potential management around the edges.

As I get ever nearer to retirement, I contrive each year to stay within the 20% tax bracket. Next year will be challenged to achieve this objective now that I have taken the benefit of a small DB pension alongside my salary. If the Chancellor leaves the current arrangements in place then I will need to make a pension payment above £40,000.

I have a bad feeling that this is an arrangement that will be closed this week.