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Exceeding annual allowance!
Comments
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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?
So assuming you didn't make large contributions in previous years, you are unlikely to have exceeded the annual allowance.
You have exceeeded the 100% of earnings limit (a separate limit, nothing to do with the annual allowance), for which there is no carry forwards.
For this limit, employer contributions are not relevant, sal sac contributions themselves are not relevant either as they count as employer contributions. But sal sac conts do reduce your earnings.
So if your taxable income is £34k-5k sal sac = £29k, then you can only get tax relief on £29k gross personal contributions to a SIPP etc.
If you have paid in more, you can get a refund as above.0 -
Firstly, you need to ignore any drivel you read about carry forwards not being available if you earn under £40k. It is rubbish. Carry forwards is part of the annual allowance. Whether you earn £20k or £80k the annual allowance and carry forwards rules are the same. OK?
So assuming you didn't make large contributions in previous years, you are unlikely to have exceeded the annual allowance.
You have exceeeded the 100% of earnings limit (a separate limit, nothing to do with the annual allowance), for which there is no carry forwards.
For this limit, employer contributions are not relevant, sal sac contributions themselves are not relevant either as they count as employer contributions. But sal sac conts do reduce your earnings.
So if your taxable income is £34k-5k sal sac = £29k, then you can only get tax relief on £29k gross personal contributions to a SIPP etc.
If you have paid in more, you can get a refund as above.
Thanks for this, I understand now. So effectively sal sac of £5,000 is no problem, however my earnings are now effectively £29,000 for the tax year. So as I've contributed £31,000 into a personal pension (gross), I still owe HMRC 20% of £2,000? And this will just increase by the more salary sacrifice I do for the remaining year?
So do you know how I go about repaying this amount that I shouldn't be receiving tax relief on? Or if I were to get a refund - do I need to calculate the exact amount? Because its tough to get it down to the exact penny..0 -
Thanks for this, I understand now. So effectively sal sac of £5,000 is no problem, however my earnings are now effectively £29,000 for the tax year. So as I've contributed £31,000 into a personal pension (gross), I still owe HMRC 20% of £2,000? And this will just increase by the more salary sacrifice I do for the remaining year?
So do you know how I go about repaying this amount that I shouldn't be receiving tax relief on? Or if I were to get a refund - do I need to calculate the exact amount? Because its tough to get it down to the exact penny..0 -
With AA charge, if the tax charge is over 2k the pension co has to pay it out of your pension if you want then to but you don't have to ask them to. If it is below 2k then you have to pay the charge yourself unless your pension co is willing to - Scottish widows refused to pay an AA charge of £1200 for me. It is better if the pension company pays it as for me that comes out of sal sac no tax and no employee or employer NI contributions whereas if I pay it it comes out of taxed/ni'd money.
I simply declare the excess on my tax return and HMRC work out what is owing which I then pay.I think....0 -
With AA charge, if the tax charge is over 2k the pension co has to pay it out of your pension if you want then to but you don't have to ask them to. If it is below 2k then you have to pay the charge yourself unless your pension co is willing to - Scottish widows refused to pay an AA charge of £1200 for me. It is better if the pension company pays it as for me that comes out of sal sac no tax and no employee or employer NI contributions whereas if I pay it it comes out of taxed/ni'd money.
I simply declare the excess on my tax return and HMRC work out what is owing which I then pay.0 -
That applies to exceeding the annual allowance, but as we seem to have established in this thread, the OP has not exceeded the AA, he/she's exceeded the 100% of earnings tax relief limit. The way this is dealt with is totally different to exceeding the AA, discussed above.
Thanks for all your help. I've contacted Standard Life and they've said I might need to pay a 55% penalty on the amount I've over contributed! I've worked this out to be around £7,000 by the end of the year! Is this normal?0 -
Thanks for all your help. I've contacted Standard Life and they've said I might need to pay a 55% penalty on the amount I've over contributed! I've worked this out to be around £7,000 by the end of the year! Is this normal?
You might need to wait till after the end of the tax year though, so you can prove it's actually excess contributions, as until you know exactly what your earnings are you can't know what the excess is. If too much is refunded that would be an unauthorised payment. So SL might require proof of your earnings etc.
It's probably not something whoever you spoke to has dealt with before. You could phone again and hope you get someone who knows what they're talking about, or better, write to them. Point them at the HMRC PTM page reference or URL.0 -
I've contacted Standard Life and they've said I might need to pay a 55% penalty on the amount I've over contributed! I've worked this out to be around £7,000 by the end of the year! Is this normal?
I suggest that you salary sacrifice down to minimum wage if you like. The difference between your eventual after sacrifice gross pay and your personal contributions is the gross excess contribution and you'll get 80% (all but the tax relief) back from SL as a refund of excess contributions lump sum. The extra sacrifice is better for you and just increases your refund due to the lower after sacrifice gross pay.
You don't contact HMRC, the pension company does, and pays you the refund.
You're not in any sort of trouble, just relax and do what makes sense then ask SL for the refund, telling them your P60 gross pay. Use the "refund of excess contributions lump sum" magic words to help point them in the right direction. It's routine, just not particularly common.0 -
With AA charge, if the tax charge is over 2k the pension co has to pay it out of your pension if you want then to but you don't have to ask them to. If it is below 2k then you have to pay the charge yourself unless your pension co is willing to - Scottish widows refused to pay an AA charge of £1200 for me. It is better if the pension company pays it as for me that comes out of sal sac no tax and no employee or employer NI contributions whereas if I pay it it comes out of taxed/ni'd money.
I simply declare the excess on my tax return and HMRC work out what is owing which I then pay.
You should have paid in another whatever required to make it an extra £800 to take it up to £2000 then they would have had to pay it and the net cost to you may have been lower?
(allowing for tax and tax credit adjustments)0 -
ffacoffipawb wrote: »You should have paid in another whatever required to make it an extra £800 to take it up to £2000 then they would have had to pay it and the net cost to you may have been lower?
(allowing for tax and tax credit adjustments)
Good thinking but can't sal sac any further due to nmw so would be an AVC so would need the pension company to claim tax relief so that I therefore owed more. Would need to put just over 3k in and by mistake claim relief so that overpayment was required 2k. Not sure what the tax credits implications of this would be.I think....0
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