Find out when your pension scheme must pay some or all of the tax for you and when they can choose to do so.
The annual allowance tax is a charge which you must pay when you have gone above your annual allowance in a tax year.
You must work out how much you have gone above the tax allowance and if you have, how much the tax charge is.
If you meet certain criteria, your pension scheme must pay this charge for you if you tell them to, this is also known as mandatory scheme pays.
In some cases they may choose to pay the charge for you, even if they do not have to, this is also known as voluntary scheme pays. You will need to check if your scheme will do this.
If your scheme does pay the charge for you, they must reduce your benefits.
You must tell HMRC about the tax charge using a Self Assessment tax return by the deadline, even if your pension scheme pays it. If your scheme only pays some of the charge, you must pay the rest directly to HMRC.
If the tax charge is more than £2,000
You can tell your pension scheme to pay some or all of your annual allowance tax charge if:
- your pension savings with that scheme are more than the annual allowance (currently £60,000) for that tax year
- your tax charge is more than £2,000 for that tax year
- you’ve told them by the deadline of 31 July of the year after the following tax year
There may be some cases where your scheme does not have to pay all of your tax charge even if it is more than £2,000 and you will need to pay the rest of the amount.
You will need to tell your pension scheme how much you want them to pay for you by the deadline.
If you tell your pension scheme to pay the tax charge, you cannot change your mind. If the tax charge you need to pay changes, you can ask them to change the amount they’re paying.
How to tell your pension scheme to pay the tax charge
You must tell your pension scheme electronically or in writing and include:
- your title
- your full name
- your address
- your National Insurance number (or if you do not qualify for one, the reasons why not)
- the tax year that the charge is for
- the amount of tax charge that you want the scheme to pay
- confirmation that you have worked out the tax charge at the correct rate
- confirmation that you cannot cancel your request
- confirmation that you know your benefits will be adjusted
- confirmation that you have personally submitted the request or your signature and the date
If the tax charge is £2,000 or less
Your pension scheme can choose to pay all or some of the tax charge, but they do not have to. If your scheme does not pay the tax charge, you must pay it yourself.
If your pension scheme agreed to pay the tax charge but did not, you’ll have to pay it, plus any penalties and interest if you’ve missed the deadline.
You should check that your scheme has paid the charge on time, as you may have to pay interest for late payments.
What you need to check
If your pension scheme pays this tax charge for you, you’ll need to check that they have reduced your benefits.
If your scheme does not reduce your benefits, you’ll have to pay an unauthorised payment charge.
Filling in your Self Assessment tax return
Use the HS345 pension savings helpsheet to fill in your Self Assessment tax return.
You must make sure that:
you complete box 10 if you have a tax charge, even if your scheme pays some or all of it
if your pension scheme pays some or all of the tax charge, you put the amount they pay in box 11 on the SA101
you ask for your pension scheme’s Pension Scheme Tax Reference (PSTR) and put this in box 12 on the SA101
if more than one pension scheme is paying an amount of your tax charge, you fill in the ‘any other information’ box on page TR7 on the SA100
If you’ve told HMRC your scheme will pay some or all of your tax charge, you need to make sure you also tell your scheme.