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