Individuals failing to report correct pension information on tax returns could receive large tax bills
27 November 2019
In the Pensions schemes newsletter 115 – November 2019, HMRC issued a reminder for scheme members to disclose details of their annual allowance charge on their Self-Assessment returns or face receiving substantial tax bills.
HMRC is aware that there are a large number of individuals who have not reported the fact that they have breached the annual allowance for pension contributions, which currently stands at £40,000. The newsletter prompted scheme administrators to remind any affected members of the requirement to declare the fact that they had exceeded the annual allowance on their Self-Assessment tax returns.
Pension schemes only inform members where they have exceeded the £40,000 annual allowance but would probably not advise in circumstances where the ‘tapered annual allowance’ applies. The range for annual allowance limits for individuals affected by the tapered annual allowance could range from anything between £10,000 and £40,000. The issue is that the scheme may not be aware of the fact that a member is impacted by the tapered annual allowance and so would not know to advise them that their allowance had been breached if, for example, this allowance only amounted to £20,000 per year. The member may also be unaware of the rules surrounding the tapered annual allowance and could potentially include incorrect information on their Self-Assessment return. This could result in a large tax bill for the individual.
The tapered annual allowance means that for every two pounds of adjusted income over £150,000, an individual’s annual allowance can be reduced by one pound. This could result in an allowance of £10,000 for individuals with an adjusted income of £210,000 or above.
Steve Webb, policy director at Royal London, the life insurance and pensions company, commented
“This admission means that potentially thousands of people may have failed to declare large pension inputs on their tax return and could face a large bill when HMRC finally catches up with them.
The shocking saga around the annual allowance for pension tax relief gets worse. We now have HMRC admitting that they know that people are forgetting to put information about their pension tax bills on their annual return.”
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