In recent years the government has introduced pension annual allowance and in circumstances where income exceeds £100,000 this can be tapered to a maximum of £10,000. If your total pension contribution exceeds this amount, you may be subject to a tax charge.
When you exceed the annual allowance and incur a tax charge you have a choice regarding how to pay it. This can either be by settling the liability yourself or by requesting that your pension scheme administrator pays all or some of it for you, this is known as scheme pays.
The scheme administrator is usually the pension provider or the scheme trustees. In return, they will reduce the amount of your pension benefits under the scheme. Each scheme is different so it’s important to check your relevant paperwork but there is usually a deadline of July 31 by which you must notify the scheme that you have a charge you wish them to pay on your behalf, so action should be taken as soon as possible to review your position.
HMRC set conditions which need to be met in order to use the scheme pays on a mandatory basis:
If you meet these conditions, once you tell your scheme administrator that you wish to use scheme pays, they become jointly and severally liable. This means that you are both responsible for paying the charge within the time limits. There are voluntary scheme pays arrangements too so if you don’t meet the mandatory basis then it’s worth making a voluntary request.
Please contact our tax departments for assistance with calculating the relevant annual allowance and related tax charge to meet the July 31 deadline.