Carry forward
amarshall
Member, Moderator
Client's earnings for 2018/19 projected to be £150,000 on the nose.
He wants to make an employer pension contribution before the end of this month.
He only has £40k carry forward available from 17/18. All other annual allowances have been used up or are too old to carry forward.
An employer contribution of £26,666 would taper his annual allowance for 2018/19 to £26,667.
Making an additional employer contribution of £40,000 using carry forward would use up his allowance from 17/18.
Does he have to split it into two payments? A single employer contribution of £66,666 would taper his annual allowance for 18/19 to £10k, leaving him with an excess of £16,666 over the amount available for carry forward. How is this recorded so he doesn't get hit with a AA tax charge?
Also, how on earth do HMRC plan on checking all this? Incidentally, his income in 17/18 was just below £110,000 so the £40,000 Annual Allowance is safe.
I have another client who will be hit with an Annual Allowance tax charge for 17/18 and 18/19. Whose responsibility is it to tell her how much she has to pay?
Thanks in advance for any help!
Andy
Comments
Hi,
You're correct that an employer payment of £66k would result in excess and a TAA tax charge. You can't work out as individual years because it's a single employer contribution, tested in 2018/19. Seems perverse but that's how it works. (At least that's how I read PTM57100 & PTM53200)
Has he got any personal cash?
Option 1. If he makes a £41,000 gross personal contribution then his threshold income will drop below £110,000 and the TAA won't apply in 2018/19, so he can make a £39,000 employer contribution.
Option 2. Assuming he is in control of his income and he can limit himself to £150k next year, you can wait until 6 April to pay the £41,000 gross personal contribution then carry forward the other £79,000 from 17/18 and 18/19. Again TAA won't apply.
I guess it depends on how much he wants to put in the pension, how much cash he has outside the company, and when his company year end is and if he's trying to get some CT relief.
Option 1 is a two year cycle on the current rules, assuming he can always control his income to avoid TAA.
With either of these he can tweak the personal contribution to regain 100% of his personal allowance, rather than the £6,350 (18/19)/£7,000 (19/20), by making a £50k gross personal contribution.
I'd do some sums and work out the best net result, having asked the client if he's got enough personal cash. I'd add that I don't think these suggestions fall into the anti-avoidance rule in PTM57100, but I can't say for certain. I'd be interested to know if anyone else has an opinion on that.
I have another client who will be hit with an Annual Allowance tax charge for 17/18 and 18/19. Whose responsibility is it to tell her how much she has to pay?
It is her responsibility to tell HMRC how much tax she has to pay. You might have a service agreement with the client to do these sums, or their accountant might, or neither of you.
Thanks @benjaminfabi
Perverse sums it up pretty well!
Unfortunately, he doesn't have the cash to make a personal contribution. His business is however awash with cash. Its also his year end at the end of the month so he wanted to do the contribution before that hits.
As the carry forward is from the 17/18 tax year, perhaps we can persuade him to take a lower income in 19/20 and whack £80k in due to being below the threshold income level.
Not if his income has historically been below £110k and the present £150k is an aberration, surely? (which it has)