HM Revenue & Customs (HMRC) has admitted it is aware pension scheme members “are forgetting to declare details of their annual allowance charge on their self-assessment returns”.
High earners seem to be the ones mostly affected by this, especially if they have put money into their pension above the annual allowance, set at £40,000.
But for those earning over £110,000 ($141,377, €128,403) a year before tax, their annual limit can be ‘tapered’ to as little as £10,000.
The warning from HMRC in its latest newsletter could mean that thousands of people have not declared their pension contributions.
They could potentially face penalties charged at “an individual’s marginal income tax rate which could be 40% or 45%”, mutual insurer Royal London warned.
Breach the allowance
Now, the Revenue is urging pension schemes to remind members to file their pension contributions in their annual tax returns.
The problem, Royal London said, is that pension schemes will only notify members if they have breached the £40,000 annual allowance.
But if someone’s limit has been ‘tapered’, the scheme might not be aware and won’t notify the individual.
Understanding the system
Steve Webb, director of policy at Royal London, said: “The shocking saga around the annual allowance for pension tax relief gets worse.
“We now have HMRC admitting that they know that people are forgetting to put information about their pension tax bills on their annual return.
“But filling in this tax return question requires individuals to understand the system, especially if they are affected by the tapered annual allowance.
“Thousands of people could be set to face huge tax bills because they have innocently failed to declare this information on their tax return.
“HMRC needs to get to the bottom of how many people have failed to declare this information and contact them immediately.
“And the next government needs to radically simplify the tax relief limits, to avoid this sort of situation happening again”.
