Pension adding more than £2880 non earner

Grumpy_chap

zagfles said:

You can get a refund of excess contributions. See PTM045000 - Contributions: refunds of contributions - HMRC internal manual - GOV.UK

When you contribute to a RAS scheme eg a SIPP you make a declaration that any RAS Contributions are within the tax relief limits. See PTM044220 - Contributions: tax relief for members: methods: relief at source - HMRC internal manual - GOV.UK So if you break that declaration you need to tell the provider. 

How did she declare it on her tax return? If she used the pension savings tax charges section and declared she exceeded the annual allowance, this is totally wrong. She didn't exceed the annual allowance. She exceeded the tax relief limit. AIUI there isn't a way to undo excess tax relief via the tax return. 

OK - so her mistake was to pay the £2,880 into her SIPP which was grossed up to £3.6k.
She overlooked that the employment related pension contributions from when she was working at the beginning of the year had also been made (into the employer's DC scheme).
BUT, she had not earned £3.6k so had ended up exceeding the tax relievable allowance for pension contributions.

As for the tax return and the extra tax payable - our Accountant did the sums and included the amount in her tax calculation.  I am not sure of the process.

zagfles

Grumpy_chap said:

zagfles said:

You can get a refund of excess contributions. See PTM045000 - Contributions: refunds of contributions - HMRC internal manual - GOV.UK

When you contribute to a RAS scheme eg a SIPP you make a declaration that any RAS Contributions are within the tax relief limits. See PTM044220 - Contributions: tax relief for members: methods: relief at source - HMRC internal manual - GOV.UK So if you break that declaration you need to tell the provider. 

How did she declare it on her tax return? If she used the pension savings tax charges section and declared she exceeded the annual allowance, this is totally wrong. She didn't exceed the annual allowance. She exceeded the tax relief limit. AIUI there isn't a way to undo excess tax relief via the tax return. 

OK - so her mistake was to pay the £2,880 into her SIPP which was grossed up to £3.6k.
She overlooked that the employment related pension contributions from when she was working at the beginning of the year had also been made (into the employer's DC scheme).
BUT, she had not earned £3.6k so had ended up exceeding the tax relievable allowance for pension contributions.

As for the tax return and the extra tax payable - our Accountant did the sums and included the amount in her tax calculation.  I am not sure of the process.

Sounds like the accountant got it wrong - he/she should have been aware of the refund option. How was the employment contribution taken? If net pay and she had spare personal allowance (ie not used up by other income) there's an argument that no tax relief was given in the employment contribution. Obviously if RAS she did get tax relief. If it was sal sac then conts could be ignored completely as it was employer conts and so no issue at all. 

Grumpy_chap

zagfles said:

Grumpy_chap said:

zagfles said:

You can get a refund of excess contributions. See PTM045000 - Contributions: refunds of contributions - HMRC internal manual - GOV.UK

When you contribute to a RAS scheme eg a SIPP you make a declaration that any RAS Contributions are within the tax relief limits. See PTM044220 - Contributions: tax relief for members: methods: relief at source - HMRC internal manual - GOV.UK So if you break that declaration you need to tell the provider. 

How did she declare it on her tax return? If she used the pension savings tax charges section and declared she exceeded the annual allowance, this is totally wrong. She didn't exceed the annual allowance. She exceeded the tax relief limit. AIUI there isn't a way to undo excess tax relief via the tax return. 

OK - so her mistake was to pay the £2,880 into her SIPP which was grossed up to £3.6k.
She overlooked that the employment related pension contributions from when she was working at the beginning of the year had also been made (into the employer's DC scheme).
BUT, she had not earned £3.6k so had ended up exceeding the tax relievable allowance for pension contributions.

As for the tax return and the extra tax payable - our Accountant did the sums and included the amount in her tax calculation.  I am not sure of the process.

Sounds like the accountant got it wrong - he/she should have been aware of the refund option. How was the employment contribution taken? If net pay and she had spare personal allowance (ie not used up by other income) there's an argument that no tax relief was given in the employment contribution. Obviously if RAS she did get tax relief. If it was sal sac then conts could be ignored completely as it was employer conts and so no issue at all. 

AIUI, employer contributions are not permitted in addition to the £3.6k (gross) threshold for low  / non- earners.
The sums are all quite small. 
She paid the little bit of extra tax to mitigate the amount that exceeded tax relief.  If that is incorrect and the Accountant made an error, and HMRC investigate, then I guess she will have to simply say (truthfully) that she is not an expert and trusted the Accountant's professional advice.

zagfles

Grumpy_chap said:

zagfles said:

Grumpy_chap said:

zagfles said:

You can get a refund of excess contributions. See PTM045000 - Contributions: refunds of contributions - HMRC internal manual - GOV.UK

When you contribute to a RAS scheme eg a SIPP you make a declaration that any RAS Contributions are within the tax relief limits. See PTM044220 - Contributions: tax relief for members: methods: relief at source - HMRC internal manual - GOV.UK So if you break that declaration you need to tell the provider. 

How did she declare it on her tax return? If she used the pension savings tax charges section and declared she exceeded the annual allowance, this is totally wrong. She didn't exceed the annual allowance. She exceeded the tax relief limit. AIUI there isn't a way to undo excess tax relief via the tax return. 

OK - so her mistake was to pay the £2,880 into her SIPP which was grossed up to £3.6k.
She overlooked that the employment related pension contributions from when she was working at the beginning of the year had also been made (into the employer's DC scheme).
BUT, she had not earned £3.6k so had ended up exceeding the tax relievable allowance for pension contributions.

As for the tax return and the extra tax payable - our Accountant did the sums and included the amount in her tax calculation.  I am not sure of the process.

Sounds like the accountant got it wrong - he/she should have been aware of the refund option. How was the employment contribution taken? If net pay and she had spare personal allowance (ie not used up by other income) there's an argument that no tax relief was given in the employment contribution. Obviously if RAS she did get tax relief. If it was sal sac then conts could be ignored completely as it was employer conts and so no issue at all. 

AIUI, employer contributions are not permitted in addition to the £3.6k (gross) threshold for low  / non- earners.
The sums are all quite small. 
She paid the little bit of extra tax to mitigate the amount that exceeded tax relief.  If that is incorrect and the Accountant made an error, and HMRC investigate, then I guess she will have to simply say (truthfully) that she is not an expert and trusted the Accountant's professional advice.

Where did you get that idea? They are permitted, employer contributions have no effect whatsoever on the tax relief limit, as the employee gets no (direct) tax relief on them. 

Employer contributions do count towards the AA, but that's a non issue in this case. They are irrelevant for the tax relief limit.

Quite frankly though, most accountants and even financial advisors don't seem to understand pension tax rules. This is a pretty good summary, aimed at financial advisors/accountants, and should be compulsory reading for them! Tax Relief and Annual Allowance | M&G Wealth Adviser