Exceeding Annual Pension Limit (and using carrying over)

P1Fanatic

Its highly likely I will exceed the £40k annual contribution allowance this tax year for the first time - mainly because my company requests us to sign a bonus waiver stating % end of Jan before we even have confirmation of the actual bonus mid Feb (chicken before the egg scenario). This year I based it on predicted but the actual ended up being above that that. What actually happens when you exceed the £40k limit and do I have to do anything to say I would like to use carryover allowance from previous years or does HMRC just automatically do that (I am paying tax via PAYE and contributing to pension via Salary Sacrifice)?

Going forward are there any downsides to making use of remaining carryover and maximizing my contributions for the next 2yrs?

Thanks in advance!

jaypers

This is quite a helpful checklist. There are quite a few useful articles online. Don’t see any downside as long as guidelines are followed - https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/carry-forward

P1Fanatic

jaypers said:

This is quite a helpful checklist. There are quite a few useful articles online. Don’t see any downside as long as guidelines are followed - https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/carry-forward

Thanks. First few sites I googled made no mention of carryover allowance so I started to worry that I had misunderstood it.

Dazed_and_C0nfused

What actually happens when you exceed the £40k limit and do I have to do anything to say I would like to use carryover allowance from previous years or does HMRC just automatically do that (I am paying tax via PAYE and contributing to pension via Salary Sacrifice)?

HMRC don't do it, you have to make sure you are within the limit (including use of any carry forward available) and complete a Self Assessment return if you exceed it.

Remember with salary sacrifice you aren't contributing anything to a pension.  That's why no pension tax relief is added to the contribution.  You are agreeing to a lower salary in return for additional employer contributions.

P1Fanatic

Dazed_and_C0nfused said:

What actually happens when you exceed the £40k limit and do I have to do anything to say I would like to use carryover allowance from previous years or does HMRC just automatically do that (I am paying tax via PAYE and contributing to pension via Salary Sacrifice)?

HMRC don't do it, you have to make sure you are within the limit (including use of any carry forward available) and complete a Self Assessment return if you exceed it.

Remember with salary sacrifice you aren't contributing anything to a pension.  That's why no pension tax relief is added to the contribution.  You are agreeing to a lower salary in return for additional employer contributions.

I understand that (maybe didn't phrase it very well) i.e. all contributions are employER rather than employEE. But what bearing (if any) does that have on exceeding the annual allowance?

TiVo_Lad

P1Fanatic said:

Dazed_and_C0nfused said:

What actually happens when you exceed the £40k limit and do I have to do anything to say I would like to use carryover allowance from previous years or does HMRC just automatically do that (I am paying tax via PAYE and contributing to pension via Salary Sacrifice)?

HMRC don't do it, you have to make sure you are within the limit (including use of any carry forward available) and complete a Self Assessment return if you exceed it.

Remember with salary sacrifice you aren't contributing anything to a pension.  That's why no pension tax relief is added to the contribution.  You are agreeing to a lower salary in return for additional employer contributions.

I understand that (maybe didn't phrase it very well) i.e. all contributions are employER rather than employEE. But what bearing (if any) does that have on exceeding the annual allowance?

Nothing. The annual limit is for all contributions, regardless of source. If you have previous years, you can use them to cover anything over the £40K (starting with the oldest of the previous years). You don't have to tell anyone you've done that, but be sure you have records to prove they were available. The easiest way is to use your annual pension statement that will show all your contributions in each tax year and can be used if HMRC ever come calling.

P1Fanatic

TiVo_Lad said:

P1Fanatic said:

Dazed_and_C0nfused said:

What actually happens when you exceed the £40k limit and do I have to do anything to say I would like to use carryover allowance from previous years or does HMRC just automatically do that (I am paying tax via PAYE and contributing to pension via Salary Sacrifice)?

HMRC don't do it, you have to make sure you are within the limit (including use of any carry forward available) and complete a Self Assessment return if you exceed it.

Remember with salary sacrifice you aren't contributing anything to a pension.  That's why no pension tax relief is added to the contribution.  You are agreeing to a lower salary in return for additional employer contributions.

I understand that (maybe didn't phrase it very well) i.e. all contributions are employER rather than employEE. But what bearing (if any) does that have on exceeding the annual allowance?

Nothing. The annual limit is for all contributions, regardless of source. If you have previous years, you can use them to cover anything over the £40K (starting with the oldest of the previous years). You don't have to tell anyone you've done that, but be sure you have records to prove they were available. The easiest way is to use your annual pension statement that will show all your contributions in each tax year and can be used if HMRC ever come calling.

Great thanks. Yeah I keep all my records including annual pension statements.