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Annual Allowance Charge

How does this get triggered?

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Hi

If Pension contributions made through salary sacrifice i.e. employer contributions exceed the annual allowance then how does the annual allowance change get triggered? Does the pension company just send out letters if the £40k is breached? The pemsion company doesn't know the earnings if they are over 150k and hence a reduced annual allowance and the company probably doesn't have the expertise to forewarn. Is HMRC just relying on good old honesty through self assessment again to pick this up?

Thanks

MDK

 

 

 

Replies (10)

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By memyself-eye
27th Jan 2020 09:56

First time I've seen 'contributions' shortened to 'conts'
At least I hope that's what happened....

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Replying to memyself-eye:
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By MDK45
27th Jan 2020 10:06

Shortened, yes. I'm not sure why. I suspect with the many budgets I've done over the years that contributions makes the excel column too wide even on a wrap text! I'll edit it!

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By Wanderer
27th Jan 2020 10:34

It's income, not earnings.
Assessed via SA.
No doubt in a few years will be the next thing that HMRC looks at, as they'll know the majority of the details anyway. Rather like the HICB follow ups that they've made years after the charge came in.

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By Matrix
27th Jan 2020 12:55

I raised this previously. I have mentioned it in connection with various tax returns this year and have noticed that no one knows anything about it. So could end up like HICBC.

https://www.accountingweb.co.uk/any-answers/annual-allowance-for-higher-...

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Replying to Matrix:
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By MDK45
27th Jan 2020 13:12

Thanks. I agree that it looks like an impending car crash. It looks like there's enough relief to carry forward into 2018/19 and HMRC state on their website that they don't require any notification if there's enough relief to bring forward. I need to do a working to make sure though and also to carry it forward to 2019/20 when the salary is rising YOY. I'm thankful it's a defined contribution scheme.

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Replying to MDK45:
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By Wanderer
27th Jan 2020 13:17

MDK45 wrote:

Thanks. I agree that it looks like an impending car crash.

Agreed, particularly if you look at the fact that the tapering first came in, in 2016/2017. This means an awful lot of people would have fully utilised brought forward relief in 2018/2019 so 2019/2020 will be the year of the car crash. Hence why the poor unfortunate hospital consultants are currently saying that they can't afford to work and the Government are going to effectively pay their 2019/2020 tax bills on the pension for them.
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Replying to Wanderer:
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By MDK45
27th Jan 2020 13:31

Surely, higher earnings will just say to their employers pay me just £10k in contributions and I'll take the rest as a cash benefit to stick in a better performing ISA?

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Replying to MDK45:
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By Wanderer
27th Jan 2020 13:39

Well a cash benefit has tax consequences obviously.
Well informed high earners with decent accountants may well take this action. In practice however most unrepresented taxpayers will not realise they have a problem until such problem rears its head months / years after the pension contributions have been paid.

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By Matrix
27th Jan 2020 13:51

But what about represented taxpayers? How much responsibility should accountants bear? We are going to update our tax return checklists to give us salary sacrifice and employers contributions but is it really the accountant’s responsibility to calculate the annual allowance each year? We would not usually get involved with pensions but have raised this with our higher earners.

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Replying to Matrix:
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By Wanderer
27th Jan 2020 14:20

I generally advise clients to push it back to their IFAs as they are often advising clients in 'real time' before the contributions are paid whereas we are often just seeing things after the event. Have had several clients thanking us for being pro-active and making this suggestion to them.
I do think that there will be a lot of people looking for someone to blame if / when something hits the fan and may well try to lay this blame on the accountancy profession.

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