A new report has revealed that high earners could be hit with large tax bills if they fail to declare pension contributions on their 2018/19 tax returns.
When completing their self-assessment, taxpayers are asked if they’ve put any money into a pension scheme above the annual pensions allowance. For most, this allowance is £40,000 – but for every £2 of income above £150,000, a high earner’s allowance is reduced by £1 to give an alternative figure known as the tapered allowance.
The maximum reduction is £30,000 which means that additional-rate taxpayers who earned more than £210,000 in 2018/19, will see their tapered annual allowance reduced to £10,000.
Pension contributions that exceed an individual’s tapered annual allowance will be charged at the taxpayer’s marginal rate, usually 40% or 45%.
It’s all a bit of a mouthful and it’s feared that the complexities and lack of understanding surrounding the tapered annual allowance is having dire consequences for those affected.
The insurance company, Royal London suggests that all the confusion is resulting in some taxpayers being unable to answer how much money has been put into their pension scheme.
Director of policy at Royal London, Steve Webb commented:
“HMRC admits that they know 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.”
The deadline to submit tax returns relating to 2018/19 through self-assessment is at midnight on 31 January 2020. If you need help completing your self-assessment tax return, please get in touch about our tax planning services and we can help.
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