Carry forward the allowance?

Barry_Bear

With the £3,600 limit for contributions without any earnings, can you use this allowance in combination with carry-forward? If you have not fully used the £40,000 overall limit for the previous 3 years and have not used the £3,600 allowance either can you carry forward up to 3 x £3,600 plus the current year £3,600 or is the non-earnings allowance limited to the current tax year on a use it or lose it basis?

If the £3,600 allowance cannot be used with carry forward, then if a company director has no relevant earnings and has made no pension contributions for 3 years and receives a lump sum company pension contribution of £80,000, can the director still also make a £3,600 personal contribution for the current year? If so, would the company amounts be allocated as follows using carry forward:

2017/18 - £40,000 company
2018/19 - £3,600 company (the amount displaced by the personal contribution allocated here).
2019/20: -
2020/21: £36,400 company / £3,600 personal = £40,000

Thanks!

anselld

You cannot carry forward the 3600s.
You can still make 80k company plus 3600 personal contributions in the current year subject to availability of sufficient carry forward allowance.   It is also supposed to be "consistent with work undertaken" so questions may be asked if it brings about a trading loss for example.
The 80k would all be shown in the current year; carry forward calculation is a separate issue not affecting the accounts.

zagfles

Your question makes no sense. 

There is a tax relief limit of £3600/relevant earnings. This has no carry fowards.

There is an annual allowance, of £40k for everyone unless the tapered annual allowance (high earners) or MPAA (you've accessed pensions flexibly) apply. This has carry forwards.

These are independant limits set by different legislation. They don't interact. It's like a speed limit set by a road sign and the max speed capability of your car. Two separate limits which limit your speed, but don't interact.

Read your previous thread, it was explained there.

Barry_Bear

anselld and Zagfles, thanks for confirming the £3,600 has no carry forward. So that can only be paid for the current tax year. 

Zagfles, surely the two amount interact in so far as there is a £40,000 overall annual limit? So if the director receives an £80,000 company contribution and makes a £3,600 personal contribution (if making a personal contribution is allowed when also receiving a company contribution), surely the total amount £83,600 has to be allocated so that no more than £40,000 is allocated to any one tax year. So if you have 3 years available carry forward to use up, surely both amounts have to be counted towards the total (as I think you said in the previous thread it doesn't matter where the contributions come from)?

2020/21 company makes a £80,000 contribution and director makes a £3,600 contribution:

2017/18 - £40,000 company contribution counts towards this carry forward period
2018/19 - £3,600 company contribution counts towards this carry forward period
2019/20: -
2020/21: £36,400 company / £3,600 personal = £40,000

How is my maths wrong?

zagfles

They don't interact. They are separate limits. I get bored stating that here.

I pointed you at an annual allowance calculator in the other thread. Use that for the AA.

Then check you've not exceeded the tax relief limit, for which there is no carry forwards and employer conts don't count.

It looks like the above is OK - for the AA you are carrying forwards £43600, and you're not exceeding the tax relief limit as personal conts are only £3600.

Barry_Bear

zagfles said:

They don't interact. They are separate limits. I get bored stating that here.

I pointed you at an annual allowance calculator in the other thread. Use that for the AA.

Then check you've not exceeded the tax relief limit, for which there is no carry forwards and employer conts don't count.

It looks like the above is OK - for the AA you are carrying forwards £43600, and you're not exceeding the tax relief limit as personal conts are only £3600.

Thanks. Yes I checked the link and it seems to just deduct the amount contributed from £40,000 for the current plus 3 prior years. So personal and company contributions are just pooled and all count toward the total, but only company contributions can fill the unused 3 year carry forward allowance.

Do you know, does HMRC just keep a record and track all the carry forward allowances people have and record all the contributions made from all sources? How does the system work so you don't accidentally pay too much in? Does HMRC automatically write to notify people who get it wrong and pay in too much?

dunstonh

Do you know, does HMRC just keep a record and track all the carry forward allowances people have and record all the contributions made from all sources?

Pension contributions are recorded under your NI number.

 How does the system work so you don't accidentally pay too much in?

It doesn't.  Self-assessment makes you responsible. 

Does HMRC automatically write to notify people who get it wrong and pay in too much?

Usually, they contact the people a few years later and you suffer a tax charge and penalty interest.

Barry_Bear

Thanks.
It's worrying that if you get it wrong they may write a few years later! It would be too much to hope they would notify any possible error soon after the financial year end.
Anyway this is another reason to be sure not to get it wrong!