How to pay back a Taxable Annual Allowance breach

richieboy_2

I am looking to find out how a breach in the annual allowance is paid back in practical terms.

I am a member of LGPS in Scotland. My salary is approx. £90k and I have been paying AVC's to the linked Prudential scheme to take advantage of tax relief and make the most of all my carry over allowances. I have not quite exhausted these yet but could do in FY21/22 depending on what I decide to pay in. I understand that if this happens I incur a tax charge. If this happens I understand I can make arrangements with HMRC to repay this or arrange with the LGPS to pay this on my behalf if the charge is more than £2k and they would in effect debit my pension benefits. If I arrange with HMRC is this usually a one of direct payment or do they adjust my tax code to spread this through the year? I have been advised by LGPS that after this year I will likely breach the AA without any AVC contributions as my Salary pension contributions and the Pension Input Value exceeds £40k. I dont ususally complete a Tax Return.

Thanks in advance.

Dazed_and_C0nfused

If you end up being responsible I think the only option is to pay it by completing a Self Assessment return.

hugheskevi

richieboy_2 said:

I am a member of LGPS in Scotland. My salary is approx. £90k...I have been advised by LGPS that after this year I will likely breach the AA without any AVC contributions as my Salary pension contributions and the Pension Input Value exceeds £40k.

That appears unlikely, unless you have significant pensionable allowances or final-salary linked service and have had or expect to have a pay increase.

I understand that if this happens I incur a tax charge. If this happens I understand I can make arrangements with HMRC to repay this or arrange with the LGPS to pay this on my behalf if the charge is more than £2k and they would in effect debit my pension benefits. If I arrange with HMRC is this usually a one of direct payment or do they adjust my tax code to spread this through the year?

If a tax charge is due, you have to register for Self-Assessment and complete Self-Assessment to declare the tax charge. You calculate whether a tax charge is due by obtaining Pension Saving Statements from all schemes in which you have accrued pension (you may need to request these).

You can choose to either pay the charge directly, simply as part of a Self-Assessment bill due by 31st January as usual. Alternatively, if you are eligible for mandatory Scheme Pays you can ask the scheme to pay the charge on your behalf by reducing your pension. You still have to declare the tax charge due, and also complete details of the scheme from which the Scheme Pays payment will come from. You then separately arrange for the scheme to send a Scheme Pays payment. Use of mandatory Scheme Pays extends the payment deadline.

If you are not eligible for mandatory Scheme Pays (eg if you breach due to a combination of inputs from 2+ schemes but don't breach in any individual scheme), your scheme may operate voluntary Scheme Pays. This does not extend the payment deadline.