Declaring overpaid pension contributions due to Annual allowance taper

TJ666

Hi. In 23/24 I got an unexpectedly high income (a one-off) due to employers shares, which were taxed upon vesting in the payslip.  I had put nearly £60k into a DC pension via salary sacrifice, employer contributions and NI payover.  My pay was at nearly £360k due to the notional value of the shares.  I am now aware of the Annual allowance tapering, which would reduce my permissible pension contributions to about £10k.

My question is, what is the mechanism for HMRC to tax the approx £50k that went into my pension incorrectly ?  Do I wait for the pension savings statement (late summer usually), for the pension company to instruct HMRC ? Then what ?  I don't see anything in the Self assessment form to declare this.  Do I wait for HMRC to act on the information given to them by the Pension company. Or, if I have an obligation to tell HMRC (when I get the exact number from the pension provider), how do I tell them ?

I've looked  at a previous year's pension saving statement, which states that the pension provider has an obligation to inform HMRC by the next 31st Jan, which is too late for a self assessment.
Can I proceed with my self assessment for 23/24 without informing them (either because I don't know the exact pension overpayment yet, or because they don't appear to ask on the SA form).

I don't want to get fined for with-holding information.

BTW, I have no previous years annual allowance left to carry forward and I gift aided to charities, but not enough to overcome the AA tapering.

Apologies for so many questions, but all related.
Thank you

hugheskevi

You have to proactively declare the breach on your Self-Assessment.

You should request a Pension Saving Statement from your pension provider, as they will not be aware you are subject to tapering and as you did not exceed the standard Annual Allowance will not be due to receive a Pension Saving Statement. You should also check whether your scheme permits the use of Scheme Pays for members affected by the taper.

This will be sent by 6th October. It will be easy to see how much you have exceeded the allowance by given you are fully tapered and have no carry-forward, so will just be the pension input less £10,000.

You have to fill in the value by which you exceeded the Annual Allowance on your Self Assessment, using the "Additional Information" section.

 The boxes highlighted below are the ones you will need to complete (this is from an old Self Assessment form so might have changed a bit).

Dazed_and_C0nfused

Have you looked carefully enough at the SA return?

This might be useful.

https://www.gov.uk/guidance/who-must-pay-the-pensions-annual-allowance-tax-charge

TJ666

Thank you, both of you. excellent answers, I will look more closely at the SA return.  I had assumed it would be in the pension section, and hadn't looked in Additional information.

theblueflash

Also - if you choose to have the pension scheme pay the tax due  (usually a good route as it’s from untaxed rather than taxed  income) - check if your scheme provider has a cut-off date for scheme pays. I nearly fell foul of this last year with Fidelity. 

hugheskevi

theblueflash said:

Also - if you choose to have the pension scheme pay the tax due  (usually a good route as it’s from untaxed rather than taxed  income) - check if your scheme provider has a cut-off date for scheme pays. I nearly fell foul of this last year with Fidelity. 

Note that as the charge arises entirely from the tapered AA, the scheme is not obligated to offer Mandatory Scheme Pays, but may offer Scheme Pays despite not being obligated to do so.

TJ666

theblueflash said:

Also - if you choose to have the pension scheme pay the tax due  (usually a good route as it’s from untaxed rather than taxed  income) - check if your scheme provider has a cut-off date for scheme pays. I nearly fell foul of this last year with Fidelity. 

Thank you, I was thinking about scheme pays. I was thinking that now that there's no longer a Lifetime allowance, (except for the cap on the 25% tax free amount) it didn't make sense to reduce my pension to pay for AA tax charge.  I thought you might as well let the money grow tax free inside a pension. 
However, I forgot that paying out of the pension is tax free, whereas paying out of salary would be out of taxed income. i.e. costs =  tax charge /0.55 (marginal tax rate is 45%).  Quite a difference.  Cannot thank you enough.

Let me know if there are further wrinkles around this.  Am I right in thinking that the closer you are to retirement, the more it makes sense to pay via scheme pays (there is less time for the pension to grow tax free).  Assuming all other tax efficient ways of saving are maxed out.

I have requested pensions savings statement, scheme pays application forms and deadlines.