Contributing over the 40k AA

SpeedSouth

zagfles said:

You might be able to use "scheme pays", see https://www.gov.uk/guidance/who-must-pay-the-pensions-annual-allowance-tax-charge

Note you still have to do a tax return even if the scheme pays the charge.

So reading this, I'd do the self assessment then that would provide me with the charge I owe.

What I did spot is "confirmation that you know your benefits will be adjusted".   Does this mean if the scheme pays the charge out of the pension in effect my pension contributions were less by the amount of charge, thereby increasing my salary in the view of tax benefits?  Or is it referring to pension benefits only

i.e Declared £20K earnings on tax credits, but found to have a £2K tax charge.  Is my relevant earnings for the previous years tax credits now £22k if the scheme pays?

michaels

SpeedSouth said:

zagfles said:

You might be able to use "scheme pays", see https://www.gov.uk/guidance/who-must-pay-the-pensions-annual-allowance-tax-charge

Note you still have to do a tax return even if the scheme pays the charge.

So reading this, I'd do the self assessment then that would provide me with the charge I owe.

What I did spot is "confirmation that you know your benefits will be adjusted".   Does this mean if the scheme pays the charge out of the pension in effect my pension contributions were less by the amount of charge, thereby increasing my salary in the view of tax benefits?  Or is it referring to pension benefits only

i.e Declared £20K earnings on tax credits, but found to have a £2K tax charge.  Is my relevant earnings for the previous years tax credits now £22k if the scheme pays?

The wording seems to me to refer to your pension benefits.  Wouldn't like to hazard a guess as to what DSS would think in terms of income used for benefits calculation and would be very surprised if you got a sensible answer our of asking them.  Probably best just to fill in your tax return and tax credits/UC application correctly and wait for them to assess. 

If your scheme does pay the charge for you, they must reduce your benefits.

zagfles

SpeedSouth said:

zagfles said:

You might be able to use "scheme pays", see https://www.gov.uk/guidance/who-must-pay-the-pensions-annual-allowance-tax-charge

Note you still have to do a tax return even if the scheme pays the charge.

So reading this, I'd do the self assessment then that would provide me with the charge I owe.

I don't think you can do it like that, you have to declare how much the scheme paid on the tax return, so you have to ask them to pay before you do the tax return AIUI. So the way I understand it is you have to work out the charge yourself, ask the scheme to pay, and then declare what they paid on your tax return. But I've never done it myself. If you google "annual allowance charge scheme pays" there's a few helpful articles, ignore the ones for specific DB schemes.

What I did spot is "confirmation that you know your benefits will be adjusted".   Does this mean if the scheme pays the charge out of the pension in effect my pension contributions were less by the amount of charge, thereby increasing my salary in the view of tax benefits?  Or is it referring to pension benefits only

Yes it means you get less in pension benefits. In a DC scheme you have less in the scheme, in a DB your pension is reduced.

i.e Declared £20K earnings on tax credits, but found to have a £2K tax charge.  Is my relevant earnings for the previous years tax credits now £22k if the scheme pays?

Don't think so but be aware of the "notional income" rules in tax credits. I don't think they can apply it to normal RAS/net pay pension contributions because of the way the legislation is worded, ie pension contributions come off after income is totalled, but I think they could theoretically to sal sac. I doubt they would normally but when someone is doing a big sacrifice in a way that is tax disadvantageous then that may be seen as evidence that the main motivation to sacrifice income was to increase the tax credits award. Not heard of it ever happening though.

See https://www.gov.uk/hmrc-internal-manuals/tax-credits-technical-manual/tctm04800

hugheskevi

zagfles said:

I don't think you can do it like that, you have to declare how much the scheme paid on the tax return, so you have to ask them to pay before you do the tax return AIUI. So the way I understand it is you have to work out the charge yourself, ask the scheme to pay, and then declare what they paid on your tax return. But I've never done it myself. If you google "annual allowance charge scheme pays" there's a few helpful articles, ignore the ones for specific DB schemes.

On Self-Assessment, for Annual Allowance charge you have to enter the amount contributed to a pension in excess of the Annual Allowance (having taken into account carry-forward, tapered Annual Allowance, money-purchase Annual Allowance, etc). Once you have done that, the return automatically calculates the total amount of tax due or refund owing, taking into account all tax affairs.

So you can look at the return with and without an amount by which Annual Allowance has been exceeded entered, and the difference in tax due/refund owing is what HMRC calculate the Annual Allowance tax charge to be. You could use this as the basis for a Scheme Pays request.

However, I'd only use the above as a check for my own calculations, starting with amount contributed in excess of Annual Allowance and applying marginal tax rate to that. This is usually 40%, as Annual Allowance doesn't affect tapering of Personal Allowance, but there could be amounts owing taxed at 20%, or 45% for those with higher taxable incomes.