reporting underpaid tax to HMRC

4 year time limit?

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Our client works for the NHS with a final salary pension scheme.  This year, the pensions department wrote to her and told her that pension input amounts had exceeded £40k and she may have excess contributions.  This is the first time they have written to her regarding this. 

Those of you in the know re NHS pensions will know that the scheme changed a few years ago so she does in fact have two schemes running together, an old one and a new one.  And they had only advised re one of the schemes.

To cut a long story short, we now have the PIA details for the last lots of years and if you add together the two schemes and work through carry back etc, she overcontributed not only in 2021/22 but also from 2017/18 - 2019/20.

So we need to do an overpayment relief claim for 2018/19 - 2019/20 to sort those.

I would welcome anyone's thoughts on 2017/18 which is out of time for an overpayment relief claim.

I would argue that HMRC are out of time altogether for this one as it is more than 4 years ago.  She has not been careless nor fraudulent.  the NHS pension people did not tell her there was an issue - and to put it in perspective, her salary has been under £100k the whole time, so not a big earner, but such is the way these final salary schemes work.

Would you advise HMRC that there were excess contributions in this year but we believe they are out of time so no further action taken?

Or would you take the view that it is out of time and not raise the matter with HMRC in the first place?

 

It makes me wonder how many other public sector workers there are out there with tax due on excess pension contributions.............

Replies (33)

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By rmillaree
18th Jan 2023 16:29

My lay thoughts are

I think hmrc would argue that not doing the maths when you have multiple pensions that are known to be increasing in value by tens of thousands per year is careless.

I struggle to see how burying your head in the sand while accruing in excess of 250k of projected benefits in short order could be seen as reasonable behaviour.

Why would you expect anyone else to do the maths and checks that you are meant to do?

I am presuming the figures where there to be looked at each year if the person had taken the trouble to ask.

Presuming most others in the same boat manged to do it right thgen that that seems to suggest that the behavious is careless

Are there any scheme pay concessions that could be used here - presumably all out of time - if you dont aks you dont get?

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Replying to rmillaree:
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By snickersinatwix
18th Jan 2023 16:44

I also think you are being very harsh. She had no idea about how it all works and why should she? Whilst her salary is decent, she is not up there with the high earners so it did not even cross her mind that there could be a problem.

And I would also doubt that "most others in the same boat managed to do it right" although I have no evidence of that. I suspect there are many people who have not paid tax which is due on excess pension contributions.

Out of time for scheme pay for earlier years.....

Getting the information for earlier years has taken a shocking 3 months so it has not been easy to find out.

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By CJaneH
18th Jan 2023 16:35

I think your reaction is a bit harsh. An employee under PAYE generally has never considered the tax system and usually has no idea how it works. If neither your employer nor the pension company running the occupational pension informs you , why would you ask. I do think the bodies running these pensions should tell the employees

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Replying to CJaneH:
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By Tax is always taxing
18th Jan 2023 16:39

I've never met a doctor that doesn't understand, in great detail, their pension position.

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Replying to Tax is always taxing:
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By snickersinatwix
18th Jan 2023 16:45

she is a nurse, not a doctor

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Replying to snickersinatwix:
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By David Ex
18th Jan 2023 17:16

snickersinatwix wrote:

she is a nurse, not a doctor

A very well remunerated one!! That’s genuinely surprising even for senior staff.

CJaneH wrote:

If neither your employer nor the pension company running the occupational pension informs you …

Page 15 makes some reference to Annual Allowance:

https://www.nhsbsa.nhs.uk/sites/default/files/2021-07/Retirement%20Guide...

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Replying to Tax is always taxing:
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By moneymanager
23rd Jan 2023 22:54

I had a Consultant client making substantial payments into an advised FSAVC, there had been no discussion of either the in house AVC NOR added years, when we got the added years quote there was hardly scope for that, the FSAVC refund was huge.

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Replying to CJaneH:
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By OldParkAcct
18th Jan 2023 16:44

If you work in the NHS then the pension tax problems are very much something you are aware of, its been an ongoing conversation with staff from nurses up to consultants for years. There is little chance of this being an innocent mistake.

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Replying to OldParkAcct:
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By rmillaree
18th Jan 2023 17:01

I would disagree somewhat - i could easily agree that is this an innocent mistake - some people really go out of their way not to look at somewhat complicated tax documentation whenever they can help it. I struggle to convince anyone that looking at their tax codes and trying to make sense of them makes sense. People only ever seem to look at their tax code when their net pay decreases and gross pay doesnt !

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By Wanderer
18th Jan 2023 16:57

snickersinatwix wrote:

So we need to do an overpayment relief claim for 2018/19 - 2019/20 to sort those.

I would welcome anyone's thoughts on 2017/18 which is out of time for an overpayment relief claim.

My thoughts are you are barking up the wrong tree completely with all this talk of overpayment relief claims.

snickersinatwix wrote:

..... and work through carry back etc,

Really? What is carry back in this context???

snickersinatwix wrote:

She has not been careless ......

And what is your basis for that statement?
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By David Ex
18th Jan 2023 17:14

snickersinatwix wrote:

… her salary has been under £100k the whole time, so not a big earner, but such is the way these final salary schemes work.

My knowledge of this has faded but I’m struggling to understand how a sub-£100k salary can give rise to the value of pension benefits increasing by more than £40,000. I thought schemes were 1/80th salary pa plus tax-free cash. Not like the 1/40th scheme I believe MPs allow themselves.

EDIT: Has the client been making large AVCs? I suppose that might be the cause.

EDIT: HMRC examples including this one which doesn’t breach the AA!

Example 1: 1/60th accrual rate, no separate lump sum entitlement:

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm053320

Tina is a member of a final salary scheme giving her a pension of 1/60th pensionable pay for each year of service. At the start of the pension input period Tina’s pensionable pay is £80,000 and she has 31 years pensionable service. At the end of the pension input period Tina’s pensionable pay has risen by 5% to £84,000 with 32 years pensionable service.

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Replying to David Ex:
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By Jane Wanless
18th Jan 2023 19:12

An increase of over £40k can arise when an employee has several years of contributions in a final salary scheme.
An increase from 29 years on a salary of £40K to 30 years on a salary of 45K means that one year's contributions increases all the previous 29 years contributions to give pension rights based on the higher salary. Get some higher qualifications and get promoted, and a pensions savings charge results, especially if there are repeated promotions in quick succession.

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Replying to janewanless:
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By David Ex
18th Jan 2023 20:02

janewanless wrote:

An increase from 29 years on a salary of £40K to 30 years on a salary of 45K means that one year's contributions increases all the previous 29 years contributions to give pension rights based on the higher salary.

Agreed a large increase on a large salary might do it but re-reading the OP it appears this is happening every year!

The HMRC example I quoted was an £80,000 salary with 31 years service and a 5% increase which didn’t result in an Annual Allowance breach in a 1/60 scheme!

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Replying to janewanless:
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By Hugo Fair
18th Jan 2023 21:22

"An increase from 29 years on a salary of £40K to 30 years on a salary of 45K means that one year's contributions increases all the previous 29 years contributions to give pension rights based on the higher salary" ... is neither the full story, nor entirely correct.

The NHS Pension scheme is a specialist area (not one of mine), but along with all the changes to most public sector schemes in the last few years:
a) Pension is no longer based on 'final salary' but on one or more variants of 'career average earnings';
b) Being a DB, not DC, scheme, there's no actual 'pot' owned by the contributing member, so a (rather complex) set of calcs is performed by the scheme actuaries to generate a 'deemed' pot (which would have been necessary to generate the pension if it was a DC scheme);
c) those calcs are affected by movements in the market, which can increase or decrease the deemed pot even when there is no change in expected pension.

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Replying to Hugo Fair:
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By David Ex
18th Jan 2023 22:59

Hugo Fair wrote:

The NHS Pension scheme is a specialist area (not one of mine), but along with all the changes to most public sector schemes in the last few years:
a) Pension is no longer based on 'final salary' but on one or more variants of 'career average earnings';
b) Being a DB, not DC, scheme, there's no actual 'pot' owned by the contributing member, so a (rather complex) set of calcs is performed by the scheme actuaries to generate a 'deemed' pot (which would have been necessary to generate the pension if it was a DC scheme);
c) those calcs are affected by movements in the market, which can increase or decrease the deemed pot even when there is no change in expected pension.

Fair point re move away from “pure” final salary though no idea in this case.

The HMRC calculations just apply a fixed factor of 16 for 1/60th scheme but I can’t recall the ins and outs.

For my money, I’d be getting the calculations checked. Something doesn’t seem right on the limited facts given.

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By Catherine Newman
18th Jan 2023 17:18

I have just taken on an issue like this but the overpayment has just happened. There are several pension allowance calculators including a Gov.UK one. I did a spreadsheet setting out the inputs in each year and a formula totalling them up and then put the resultant figure in for each year. That way I worked out what was carry forward. I am meeting up with the client tomorrow.

I don't think the NHS have told people enough information. One of my very highly paid consultants had to do a disclosure and the sum was too high to require the NHS scheme to pick up the tax in its entirety. I got help with this from a local tax adviser who has great experience in it.

With issues like this, I don't hesitate to ask the client whether they mind and they don't.

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Replying to Catherine Newman:
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By David Ex
18th Jan 2023 17:41

Catherine Newman wrote:

I don't think the NHS have told people enough information.

Page 15 makes some reference to Annual Allowance.

https://www.nhsbsa.nhs.uk/sites/default/files/2021-07/Retirement%20Guide...

Fact is too many people don’t read what’s made available to them. Would I if I wasn’t an accountant? Maybe not but that’s my problem if, as a consequence, I don’t fulfill my tax obligations.

And definitely less sympathy for consultants who will have private earnings and so engage accountants who should, at the very least, be flagging pensions as a tax “risk”.

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Replying to David Ex:
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By paulwakefield1
19th Jan 2023 07:21

David Ex wrote:

Fact is too many people don’t read what’s made available to them. Would I if I wasn’t an accountant? Maybe not but that’s my problem if, as a consequence, I don’t fulfill my tax obligations.

This suddenly floated into my mind:

"“But the plans were on display…”
“On display? I eventually had to go down to the cellar to find them.”
“That’s the display department.”
“With a flashlight.”
“Ah, well, the lights had probably gone.”
“So had the stairs.”
“But look, you found the notice, didn’t you?”
“Yes,” said Arthur, “yes I did. It was on display in the bottom of a locked filing cabinet stuck in a disused lavatory with a sign on the door saying ‘Beware of the Leopard.” "

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Replying to paulwakefield1:
By SteveHa
23rd Jan 2023 21:22

Oh my giddy aunt. I read your reply today, and didn't get the reference.

Tonight, for completely unrelated reasons, I went on the hunt for the radio series, and there is your quote, in episode one.

Jigger me sideways. At least, it shows I pay attention.

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Replying to SteveHa:
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By Hugo Fair
23rd Jan 2023 22:10

Douglas Adams in his purest form ... except that Paul seems to have obtained his extract from an American version (no 'flashlights' in the UK, we have torches).

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Replying to Hugo Fair:
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By paulwakefield1
23rd Jan 2023 22:46

It's a fair cop (see what I did there). I was too lazy to dig out my dog eared copy and resorted to grabbing a quote off the web which does indeed appear to be an American version.
Still have fond memories of listening to that bit in the very first broadcast in 1978 when I was meant to be revising for my finals.

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By David Ex
18th Jan 2023 19:14

snickersinatwix wrote:

To cut a long story short, we now have the PIA details for the last lots of years and if you add together the two schemes and work through carry back etc, she overcontributed not only in 2021/22 but also from 2017/18 - 2019/20.

Still struggling to understand how a sub-£100k pa salary can give rise to consistent amounts in excess of the Annual Allowance. I’d get the figures checked by an IFA familiar with these things before doing anything else.

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Replying to David Ex:
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By Trish Baillie
24th Jan 2023 09:35

I have a headmaster client in the same position - taxable salary is less than the reported growth in his pension fund for 4 consecutive years, then it levels out again. He has no idea why.

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Replying to David Ex:
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By Trish Baillie
24th Jan 2023 09:35

I have a headmaster client in the same position - taxable salary is less than the reported growth in his pension fund for 4 consecutive years, then it levels out again. He has no idea why.

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Replying to David Ex:
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By Trish Baillie
24th Jan 2023 09:36

I have a headmaster client in the same position - taxable salary is less than the reported growth in his pension fund for 4 consecutive years, then it levels out again. He has no idea why.

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Replying to David Ex:
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By Trish Baillie
24th Jan 2023 09:36

I have a headmaster client in the same position - taxable salary is less than the reported growth in his pension fund for 4 consecutive years, then it levels out again. He has no idea why.

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Replying to David Ex:
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By Trish Baillie
24th Jan 2023 09:36

I have a headmaster client in the same position - taxable salary is less than the reported growth in his pension fund for 4 consecutive years, then it levels out again. He has no idea why.

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By frankfx
18th Jan 2023 20:11

Your client may want to contact her Union.
I am sure that some technical support would be available.

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By Tax Dragon
19th Jan 2023 07:41

Fwiw I would tell HMRC. I wouldn't comment on their ability (or otherwise) to assess.

But as Wanderer says you've said some very confusing (confused?) things.

(Disclaimer: The above answer is a non-legal general opinion expressed on an open platform. It is not meant to be actionable since it's not based on complete knowledge of facts and situations. The author of this answer does not give advice in this forum and is not liable for any action taken on the basis of the above answer or any other comments she makes in this forum. Readers are advised to take specific written opinions based on full disclosure of all relevant facts.)

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By ingrat
23rd Jan 2023 11:41

The NHS pension (in Scotland certainly) said they would automatically write to the member if they exceeded the standard annual allowance. I think it is unfair to expect the member to do the calculation of the PIA themselves due to the nature of the scheme, and the fact that the SPPA frequently issue changed figures when supplying the next year's PIA. Whilst the SPPA did write to a number a members who exceeded the £40k, we have a few cases indeed where we have arrears appearing from 2017/18 etc. We are currently arguing regarding with them regarding scheme pays as the amount involved in significant. We annually contact all members to ask them to request from SPPA. If the request is submitted by the required date then the SPPA confirm the statement will be issued in October. Although this is not always the case!

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By marcia.bowers
23rd Jan 2023 15:53

This is a very specialist area and advice really needs to be sought from a specialist accountant who belongs to Aisma (as I did until I retired) or the ICAEW Heathcare Group.

Your client needs to get a Total Rewards Statement from NHS Pensions so the calculations can be checked by a specialist. As a nurse, she will be in the Officer Scheme so the growth in her 1995 pension pot will still be linked to current final salary even though she probably transferred to the 2015 scheme on 1 April 2015.

Any annual allowance excess charge can be paid by her pension pot in return for a lower pension when she retires. There are deadlines for the submission of the SPE2 (Scheme Pays Election) but NHS Pensions may waive these if they are at fault in issuing the Annual Allowance Pension Savings Statements late.

The submission of a SPE2 avoids any penalty or interest charge from HMRC but they do still need to be notified that the tax return has been amended if the charges relate to previous tax years.

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By Suzy Featherstone
23rd Jan 2023 16:01

SPPA has really struggled to provide statements over the past few years even when they have been requested at the time.Systems were simply not set up for this new demand from them. This past year is the first time they have come out automatically and its a complex calculation and so I would argue the individual has not been careless. A small salary increase can have an inordinately large effect. Lots of overtime has been worked and some of this is pensionable. Where salary rises are backdated, as is so common in the NHS, it is worth asking for figures to be reworked as it may be you can access relief from an earlier year to reduce the charges.

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By More unearned luck
23rd Jan 2023 17:07

I would have thought that unused relief b/f would eliminate any AAC for the earlier years and for the later years the thresholds are sufficiently high so that there should be no problem. If there are any years left in the middle then tell HMRC.

On carelessness: the taxpayer doesn't know what his or her pension inputs of DB schemes and you have said that the scheme administrators didn't report the inputs to the client for one of the schemes (but have done so late in the day (on prompting from you?)).

The AAC is a complex area of tax law. Even the devisers didn't seem to understand it and its consequences fully otherwise we wouldn't have had doctors refusing to do (paid) overtime. Carelessness and RE are related concepts. The UT said in Perrin that ignorance of the law could be an RE, that has some bearing here.

Any omission of the AAC from the tax return or of a tick in the 'scheme pays' box doesn't look like carelessness to me.

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