Can you still use Carry Forward?

kerrick

zagfles said:

It's carry forwards, not carry back! You do not "fill previous years", but you can (subject to conditions) carry forwards unused allowance from previous years.

If you started a pension in 2021/22 and had no pension before that, then this tax year 2022/23 you can carry forwards from 2021/22 but not previous years as you weren't in a pension scheme in previous years. So if you paid in £10k (inc tax relief) in 2021/22, you can carry forwards £30k to 2022/23 and so your available AA this year is £70k.

Any contributions you make this year count as this year's contributions for tax purposes, and also for the tax relief limit of 100% of earnings (this is a separate limit with different rules, eg no carry forwards).

If this year you only put in (say) another £10k, then next tax year you'll have an available AA of £100k (£40k plus 2x£30k carry forwards).

Or use an AA calculator like https://www.hl.co.uk/pensions/contributions/carry-forward-rule/annual-allowance-calculator

Clearly explained. Thank you.

zagfles

Grumpy_chap said:

Pat38493 said:

kerrick said:

Pat, so is that 'yes' for the situation above? If your company can pay £60k, it pays in 40k in the current year and 20k in 3 years prior? That fills years current, and 3, and 2 was already full, leaving only previous year empty.

I don't know about 100k, everything I read and other posts on here say the limit is £40k carry forward for company director contributions for each year.

To be honest I am not sure how it works with director contributions made by the company.  I just know that if you are an employee, you would be able to contribute 40k of your income in that year, plus any remaining rollover for the prior 3 years, so in the situation you describe your could theoretically contribute 100k and that would use up your current year allowance plus your remaining rollover from the 3rd year prior plus your entire allowance from last year that was never used.  

That includes any money paid by you from your salary and any paid directly by the company.

However to do that as an employee you would need at least 100k of salary income paid to you as you can only pay up to your current tax year income into the pension.  There is nothing to stop you paying 100% of your salary into your pension other than possible starvation.  I do not know if there are special rules for directors.

So yes if you wanted to pay 60k it would be the 40k current year then the 20k from the 3rd year prior.  You could then roll over the 40k from last year into next year yes.

An employee is limited to 100% of salary plus the £40k annual limit (with carry-forward if appropriate).

Company contributions are not limited by the salary (as they are made outside of salary) but the annual allowance limits (£40k plus carry-forward if available) still apply.

For an owner-Director, the company can make the contributions and the salary restriction does not then apply.

Just to clarify this because there's a lot of confusion on this issue. The "salary limit" is a limit on tax relief claimable by the SIPP. There is no tax relief claimed by the SIPP for employer/company contributions so this limit doesn't apply to them.

If someone who ran a small company wanted to get £40,000 into their (or their spouses) pension, they could either:

a) Pay £40,000 in direct from the company into the SIPP as an employer's contribution. No tax relief would be added, therefore the tax relief limit is not relevant.

b) Pay £32,000 in as a personal contribution, and the SIPP provider would add £8,000 tax relief.

But there are conditions to both.

For a) it would have to be a genuine business expense, and then it would reduce taxable profit for the business. So no tax relief is added but it might save corporation tax/dividend tax. If it were done for a non employee or it was an unreasonable level of remuneration (eg for someone who tidied the office once a week) it would likely not be allowable - this needs discussing with your accountant.

For b), in order for the SIPP to claim the tax relief, the employee's earned income (earnings only - not dividends) would have to be at least £40,000. Theoretically, you can make personal contributions above earnings and ask the SIPP provider not to claim the tax relief, but not usually a good idea as it's not usually tax efficient, and most SIPP providers don't allow it anyway.