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Do you have a Pension Tax Charge to pay?

by Steve Dean, on 3rd December 2013 | 0 comments

If you were unlucky enough to exceed the £50,000 limit for contributions to your pensions in 2011/12 and have a large liability to pay as a result, you only have until the end of this month to decide whether you want to pay the tax yourself or whether you are going to ask the Administrator of your pension scheme to pay it for you.

If you don’t tell the Administrator in writing by the 31st December 2013 that you want them to pay your liability for you, then the “Scheme Pays” option will be lost forever.

The biggest problem, though, is deciding whether or not you have exceeded the annual limit in the first place.

While measuring personal pension contributions against this limit is straightforward in that it is simply the gross premiums you have paid that have to be considered, the position for superannuation schemes like the NHS Pension Scheme is far more complex. In those cases the superannuation you paid in the year becomes irrelevant, and has to be replaced by a theoretical calculation designed by H M Revenue & Customs to reflect the full cost to the NHS across the year of producing the increase in your projected pension at retirement age. Regardless of how much extra you might have paid twards your pension in recent years, the true cost is apparently higher still.

The 2011/12 and 2012/13 “Annual Allowance Savings Statements” issued to affected members over the last few weeks reflect the result of those theoretical calculations.
If having done your calculations you come to the conclusion that you have a tax charge to pay, then you can pay this by either:

  • Entering the tax charge on your Tax Return form and paying the tax as part of your overall liability for that year, or
  • If the tax charge is more than £2,000 you can elect for “Scheme Pays” and the NHS Pensions Agency will pay the tax charge on your behalf, or
  • If the tax charge is less than £2,000 the “Scheme Pays” option will not be available and you will need to pay the tax personally. As part of your overall tax liability for 2011/12 the tax should have been paid by 31 January 2013 and interest at 3% per annum will be charged by HMRC on any tax paid late.

Any tax due for 2012/13 in respect of an Annual Allowance Savings Statement for that year will be due for payment through your 2013 Tax Return on or before the 31st January 2014.

If you need any help with working out whether you have exceeded the appropriate annual limit or in calculating the amount of tax you need to pay then please do not hesitate to contact [email protected] for assistance.