Exceeding annual allowance!

HarryGray

Hi all,

I believe I'm about to exceed my annual allowance for the current tax year (after some silly decision making). I do not earn more than £40,000. I have put in around £3,000 more than my annual earnings this tax year. However, I am still going to contribute via salary sacrifice despite the fact that I'm going to have an annual allowance tax charge due to the fact I will still get student loan and NI savings.

However, am I responsible for calculating exactly how much I owe HMRC after the tax year end? Or do HMRC calculate it and tell me? It is difficult because I was out of work for a month and then joined somewhere else part way through the month. And I know employer contributions count towards £40,000 rather than your salary?

Just confused whether I am expected to work this out and pay because there's a chance I get the calculation wrong?

zagfles

Your post implies you've totally misunderstood the annual allowance. You don't earn over £40k, yet you'll make savings in tax, NI and student loans repayments through sal sac, but think you'll exceed the annual allowance? This sounds very unlikely.

What are your earnings, your contributions, and your employer's contributions? Is it a DC (money purchase) or DB scheme (final salary/CARE)? Or both?

HarryGray

zagfles wrote: »

Your post implies you've totally misunderstood the annual allowance. You don't earn over £40k, yet you'll make savings in tax, NI and student loans repayments through sal sac, but think you'll exceed the annual allowance? This sounds very unlikely.

What are your earnings, your contributions, and your employer's contributions? Is it a DC (money purchase) or DB scheme (final salary/CARE)? Or both?

Hi, my earnings are 34k and I have made personal contributions of 31k this tax year already. Also £5,000 through salary sacrifice. So I am technically £2,000 over. However its extremely tough to calculate the exact amount, considering HMRC annual tax charge calculator says I can still contribute without a tax charge.

RD42

Any carry forward allowance from previous years?

https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/carry-forward

HarryGray

RD42 wrote: »

Any carry forward allowance from previous years?

https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/carry-forward

I can't use carry forward because my earnings don't exceed £40,000. I can only contribute 100% of my relevant earnings apparently. This is why I made the mistake - I thought I could use carry forward..

zagfles

HarryGray wrote: »

Hi, my earnings are 34k and I have made personal contributions of 31k this tax year already. Also £5,000 through salary sacrifice. So I am technically £2,000 over. However its extremely tough to calculate the exact amount, considering HMRC annual tax charge calculator says I can still contribute without a tax charge.

From the above it's not the annual allowance you have exceeded, it's the 100% of earnings limit. But are there some employer contributions too?

The annual allowance is £40k, and there is carry forwards available from the last 3 years, so it's unlikely you'll have exceeded the annual allowance.
However, if your earnings are £34k and you sal sac £5k, so your P60 income is £29k, then by making personal conts of £31k (I assume this is a gross amount, so £24.8k net, to a RAS scheme like a SIPP/PP), you have paid in more than 100% of your earnings. This is not the annual allowance. It's a separate unrelated limit, so don't confuse youself by thinking you'll be due an AA charge. You won't.

What you need to do is contact your SIPP/PP provider and tell them that you've paid in more than 100% of earnings. You can either claim the excess contributions back, or if the SIPP provider allows it, you could leave the contributions in but ask them not to claim the tax relief.

Albermarle

I do not think you have to worry about the annual allowance , especially if you contributed less than £40K in the previous tax year.
What you have done is gained more tax relief than you actually had taxable earnings , and this is the problem . I think you will have to pay back the tax relief on £2000 , which is £500.
You will need to call HMRC but don't confuse them by mentioning the annual allowance and simply explain that by mistake you paid in more than your taxable income .

HarryGray

zagfles wrote: »

From the above it's not the annual allowance you have exceeded, it's the 100% of earnings limit. But are there some employer contributions too?

The annual allowance is £40k, and there is carry forwards available from the last 3 years, so it's unlikely you'll have exceeded the annual allowance.
However, if your earnings are £34k and you sal sac £5k, so your P60 income is £29k, then by making personal conts of £31k (I assume this is a gross amount, so £24.8k net, to a RAS scheme like a SIPP/PP), you have paid in more than 100% of your earnings. This is not the annual allowance. It's a separate unrelated limit, so don't confuse youself by thinking you'll be due an AA charge. You won't.

What you need to do is contact your SIPP/PP provider and tell them that you've paid in more than 100% of earnings. You can either claim the excess contributions back, or if the SIPP provider allows it, you could leave the contributions in but ask them not to claim the tax relief.

thank you for this response. I have no carry forward available because I can only contribute gross up to 100% of my earnings (£34,000). The problem is, I have already exceeded this by £2,000 (yes some of this is employer contributions). However, there are still 6 months left of the year as I get paid on the 25th. I will be paying in around £1,100 gross per month as I still get the student loan/NI tax savings. This equates to around £6,600 over the rest of the tax year, taking me over the £40,000 annual allowance and £8,600 over my relevant earnings.

I'm fine with paying back the 20% on the £8,600 or whatever it will be, I'm just wondering whether HMRC will contact me to claim the money, or whether I am supposed to be calculating this myself..

Albermarle

You will need to call HMRC

On reflection probably best to follow Zagfles advice and contact the pension provider first .

zagfles

See here plus an example that is pretty much the same as your situation: https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm045000#Refundecls
You can't get a refund if you exceed the annual allowance, you can if you exceed the 100% of earnings limit.

HarryGray

zagfles wrote: »

See here plus an example that is pretty much the same as your situation: https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm045000#Refundecls
You can't get a refund if you exceed the annual allowance, you can if you exceed the 100% of earnings limit.

Thanks for this, that's definitely an option. However given my employer match is 8%, I'm going to be paying in at least 16% from now until April so I will probably end up contributing more than £40,000. I'm just wondering whether HMRC sends me the amount that I owe them, or do they expect me to try and figure this out?