Quick before I press the button!

Declaring a pension contribution.

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Client has made a one off contribution to his pension scheme of £125,000.  It totally wipes out his £92,000 +  earnings for this year.  I thought only £40,000 was allowable.  Should I not have entered all of it into the little box on HMRC's form?

Sorry if this seems obvious to some of you, but I have not had to deal with this before - and I'm old and tired.  Time I retired, but hey,  I can still do a great extended TB!

Replies (26)

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By ATTServices
31st Jan 2018 15:47

Have the utilised any of their pension allowance in the two prior years?

You can carry forward three years of unused pension contributions (Maximum £120k)

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Replying to ATTServices:
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By AccountingBen
31st Jan 2018 16:21

Maximum £120k? Wasn't the allowance £50k in 14/15 & 13/14?

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Replying to AccountingBen:
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By ATTServices
31st Jan 2018 16:26

From 6 April 2014 the annual allowance for tax relief on pension savings in a registered pension scheme was reduced to £40,000.

14/15, 15/16, 16/17 are the three tax years.

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paddle steamer
By DJKL
31st Jan 2018 15:56

Why has he done this?

Has an IFA advised this?

Cannot see the edge in converting tax free cash into taxable cash, I personally will only pay contributions to relieve higher rate tax, struggling to see why he did this.

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By The Accountant
31st Jan 2018 16:20

He did it without consultation. Apart from earnings he also had around £5million in capital gains (yes, I claimed entrepreneur's allowance). He has had the pension scheme/annuity for a number of years but had not utilised any of his pension allowance. The pension has been funded by a limited company of which he was/is the director. The pension is for the benefit of its employees, of which he is the sole employee. Does that make a difference. I'm really not well up on pensions/annuities.

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Replying to The Accountant:
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By ATTServices
31st Jan 2018 16:25

Has the pension been paid by the company as an employer contribution or as a deduction from a PAYE salary?

If it's an employer contribution, you shouldn't put it on the self-assessment.

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By The Accountant
31st Jan 2018 16:46

All previous payments into the scheme have been employer contributions.

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Replying to The Accountant:
paddle steamer
By DJKL
31st Jan 2018 17:00

But what about this one?

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By Martin B
31st Jan 2018 17:10

Do yourself a favour and find a new accountant for your client. He is certainly not poor and no doubt his affairs may well be complex. BIG diffrence between personal and company pension contributions.

Sorry to say but you should stick to ETB's and work you are good at.

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Replying to Martin B:
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By The Accountant
31st Jan 2018 17:13

Awwwwwwwwwwww He has been my client for around 25 years and this is the first time I've been stuck. Have a little compassion.

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By The Accountant
31st Jan 2018 17:11

This was his own private contribution.

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By The Accountant
31st Jan 2018 17:23

I feel some of you are missing the point of my question. I put the £125,000 into the box for pension payments and the program immediately cancelled out the tax that would have been due on his £92,000 of earnings and rental income. This is using just HMRC's software upload. Is this correct (given that I was correct to put it in as an employee contribution).

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Replying to The Accountant:
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By ATTServices
31st Jan 2018 17:39

No it shouldn't "cancel the tax", he should be paying tax on his earnings/rental income and on any excess contributions made to his personal pension in excess of his allowance for the three years prior (at least £5k).

The pension contributions just increase his basic rate band, allowing for more income to be taxed at a lower rate.

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Replying to ATTServices:
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By The Accountant
31st Jan 2018 17:45

So is this just a glitch on HMRC's software? Do I get the client to pay only what their calculations request?

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Replying to The Accountant:
Red Leader
By Red Leader
31st Jan 2018 17:43

Have you entered it as a s.226 contribution/retirement annuity contribution? They are paid gross and may explain the nil tax bill.

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Replying to Red Leader:
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By The Accountant
31st Jan 2018 17:47

Yes. The provider confirmed that they do not claim the tax back and that it should be shown gross on his return.

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Replying to The Accountant:
paddle steamer
By DJKL
31st Jan 2018 18:50

Could that be because the provider thinks it is an employer contribution?

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By Adam12345
31st Jan 2018 17:45

No this isn't correct.

The gross pension contributions will only lift up the basic rate band so he will pay more tax at the basic rate rather than the higher rate - he will still pay tax. Have you put it in the correct box on the tax return?

Relief is restricted in any one year to the individuals relevant earnings for the year which would just be salary, self-employment income and property income but only if a furnished holiday let - not normal buy to let income - dividends are not relevant earnings either.

Therefore if all the £92,000 is salary, you should inform the pension provider of this to ensure that they do not over claim the basic rate tax back from HMRC in error.

The annual allowance charge may be on point depending on the annual allowances brought forward.

Don't just assume he has all of his allowances brought forward. With the sums of money involved it is likely that at some point his annual allowance may have been tapered down. You need to get the full picture.

Don't rush just because it is deadline day, if he has actually been your client for 25 years, and he has capital gains of over £5m I don't think he will mind a £100 penalty too much.

Did he contribute £125,000 net or is that the gross figure?

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Replying to Adam12345:
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By The Accountant
31st Jan 2018 17:51

He contributed £125,000 gross. The pension provider confirmed they do not claim back the tax.
Have I put it in the correct box?
That is the essence of my question. What box should it be in?

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Replying to Adam12345:
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By The Accountant
31st Jan 2018 17:57

So where should it go?
"You have said that you paid into a personal pension and retirement annuity in the tax year 2016 to 2017. Please complete the following questions.

The answers to these questions can be found on any pension certificate or receipt you get from the administrator.
Payments to registered pension schemes (Also known as PPR) where basic rate tax relief will be claimed by your pension provider (called Relief at source). Enter the payments and basic rate tax:£
Help about: Pension payments - opens in a new window
Payments to a retirement annuity contract (Also known as RAR) where basic rate tax relief will not be claimed by your provider:£
Help about: Annuity payments - opens in a new window
Payments to your employer's scheme which were not deducted from your pay before tax:£
Help about: Payments to employer's scheme - opens in a new window
Payments to an overseas pension scheme which is not UK-registered which are eligible for tax relief and were not deducted from your pay before tax:£ "

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Replying to The Accountant:
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By Adam12345
31st Jan 2018 18:10

You tell me... you say the pension provider hasn't claimed basic rate tax relief back which would suggest it isn't a registered pension scheme meaning it wouldn't go on the tax return at all.

The RAR's stopped back in 1988.... so to go in the RAR box this pension scheme would've had to have been opened before then I believe so I consider this very unlikely.

Instead of asking a stranger on a forum, you could ask your client if he has any paper work in relation to this very insignificant £125,000 pension contribution....

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Replying to Adam12345:
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By The Accountant
31st Jan 2018 18:21

Yes. Wrong box.
Thank you

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Replying to Adam12345:
paddle steamer
By DJKL
31st Jan 2018 18:53

To me it sounds like the pension scheme think it is (as in the past) an employer contribution. They may not be wrong.

The OP needs to really check with their client who paid it and what paperwork went with the payment to the pension scheme.

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Replying to Adam12345:
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By The Accountant
31st Jan 2018 21:28

Scheme was opened in August 1987.

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Replying to Adam12345:
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By The Accountant
31st Jan 2018 21:35

[quote=Adam12345]

The RAR's stopped back in 1988.... so to go in the RAR box this pension scheme would've had to have been opened before then I believe so I consider this very unlikely.

The Scheme started in August 1987.

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By Matrix
31st Jan 2018 20:17

I agree with Adam. The maximum amount on which he can claim tax relief is the NRE of £92k so this is the max amount you can put in the box. My software gives relief in error if you put higher than NRE so don't do this since he would not be entitled to the relief.

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