Exceeded my pension annual allowance, what are my options?

Janin1992

I have exceeded my annual pension allowance for 2023–2024 and do not have any unused allowance from previous years. Due to internal company restructuring, my employer changed pension providers mid-year in the summer of 2023 and also altered the timing of pension contributions. As a result, they made 13 payments in the 2023–2024 tax year, with the final payment landing on 3rd April 2024. Consequently, I have exceeded my allowance by approximately £5,000.

I am currently completing my self-assessment tax return and, after entering the figures, I have determined that I owe around £2,000 in additional tax. I recall reading that when this situation arises, the pension provider should inform me and that I may be able to instruct them to pay the tax directly from my pension funds—by selling a portion of the fund—rather than paying it out of pocket. However, neither my old nor my new provider has contacted me regarding this.

My previous provider had around £25,000 deposited, while my new provider, which has no prior history with me, received £40,000 in contributions during the 2023–2024 tax year. How should I go about instructing my pension provider to pay the tax directly from my pension funds? I want to avoid the risk of being effectively taxed twice—once by paying this tax myself now and again when I eventually access my pension funds in the future.

Janin1992

After reading about Scheme Pays, it seems I am not eligible for Mandatory Scheme Pays, as contributions at each provider were below £60,000. Additionally, I have missed the deadline for Voluntary Scheme Pays.

Goodbye, £2,000! 😞

theblueflash

I’d fight the latter, my GPP provider let me do scheme pays after I’d exceeded my tapered annual allowance - even though I was a couple of months later than their notional deadline. It only takes them days to process usually. I’d give them a call and argue about the voluntary scheme pays date. 

AlanP_2

Have you looked at the dates of the contributions OR the dates of them arriving at the providers and does that make a difference.

I can't find it now but I have seen the HMRC "rules" regarding when contributions are deemed to be "counted" as some employers pay it across in days and others can take weeks.

Aylesbury_Duck

Janin1992 said:

After reading about Scheme Pays, it seems I am not eligible for Mandatory Scheme Pays, as contributions at each provider were below £60,000. Additionally, I have missed the deadline for Voluntary Scheme Pays.

Goodbye, £2,000! 😞

It's not really "goodbye", more like "see you later". 

Janin1992

AlanP_2 said:

Have you looked at the dates of the contributions OR the dates of them arriving at the providers and does that make a difference.

I can't find it now but I have seen the HMRC "rules" regarding when contributions are deemed to be "counted" as some employers pay it across in days and others can take weeks.

That’s a good point. I found this on the gov.uk website: https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm041000#IDA0QUFG. It says, "The date of payment in the case of a contribution made under the net pay arrangements is the date of deduction from the employee’s pay."

I think my pension uses the net pay arrangement—contributions are taken from my salary first, and I pay tax on the rest. But what does "the date of deduction from the employee’s pay" actually mean? Is it the day I’m paid, or something else? My pension provider usually gets the payment 2-3 weeks later, but sometimes it’s taken as long as 6 weeks.

Why does the provider use the date they receive the money, instead of the date HMRC says they should? Is this an issue with the provider or my old employer (which no longer exists after a TUPE transfer)?

If the correct date is used, I would only exceed the allowance by £300, which is much better. Should I report the £300 and deal with HMRC later if they question it?

Janin1992

I'm not sure if this post belongs in the "Cutting Tax" board. I'd like to get opinions from people who usually frequent that board. How can I move this post or cross-post it to the "Cutting Tax" board?

QrizB

Janin1992 said:

I'm not sure if this post belongs in the "Cutting Tax" board. I'd like to get opinions from people who usually frequent that board. How can I move this post or cross-post it to the "Cutting Tax" board?

Choose the "report" option at the bottom left of your first post. At the bottom of the list of options there's one to ask for the thread to be moved.

AlanP_2

I'd say you have more chance of getting accurate answers on here as there are a number of pension "experts" who are on here regularly.

The weekend is the quietest time for responses so getting more / better info may take a day or two.

As for "date of deduction", my simplistic answer would be payday as I can't see how it could be anything else. The provider does not know when you got paid and can only record contributions as they receive them.

jonclare

I looked into this for my wife as her employer was very poor at paying into the pension on a regular date. 

I am sure the date that counts is the date it is deducted from your pay - ie the date you’re paid. 

Janin1992

Sorry, everyone, I got it wrong earlier. My pension is paid through salary sacrifice, not net pay, which changes things. The guide I shared only applies to net pay and doesn’t cover salary sacrifice. This old thread https://forums.moneysavingexpert.com/discussion/5589033/confusing-advice-when-are-contributions-deemed-to-be-paid suggests the deemed date is when the pension company gets the money. But this reply from HMRC https://community.hmrc.gov.uk/customerforums/pt/82c0de78-c38c-ee11-a81c-000d3a86dfe6 says the date is the payslip date showing the salary sacrifice. It’s so confusing—why can’t HMRC give a clear ruling and update their guide to include salary sacrifice?