Pension Annual Allowance: ‘Scheme Pays’ key dates
17 September 2017
Mike Morrison, head of platform technical at AJ Bell, examines Scheme Pays, the options and the key dates of which paraplanners should be aware.
It has been six years now since ‘Scheme Pays’ was first introduced and it brought with it much needed flexibility by allowing pension scheme members to pay their annual allowance charges from their pension scheme rather than through self-assessment.
There are two options for Scheme Pays: compulsory and voluntary. If a member meets the requirements of compulsory Scheme Pays, the scheme administrator becomes jointly and severally liable for the tax charge. If they don’t meet the criteria, they may still be able to use voluntary Scheme Pays.
There are key dates to be aware of in this process, and it’s worth noting that the dates aren’t the same for compulsory and voluntary. Here I look at what those dates are in respect of the 2016/17 tax year and why they’re relevant.
6 October 2017
The first date to mention is 6 October, this being the date by which pension providers are required to issue ‘pension saving statements’. The pension savings statement is the way in which the pension scheme administrator notifies the member that their pension input to that particular scheme for that tax year exceeds the standard annual allowance of £40,000.
If a member hasn’t received a statement, however, it doesn’t necessarily mean they have escaped a charge. If a member is contributing to more than one scheme, it’s possible they could have exceeded the annual allowance cumulatively across their schemes but not have exceeded £40,000 in any one scheme. They might also be subject to, and have exceeded, the tapered annual allowance. In these situations, they won’t automatically receive a statement, but may still have action they need to take.
At this point, the deadlines for actual payment of any tax charges are not for several months, but it’s worth getting ahead of the curve now if you can.
31 December 2017
If a member is subject to a tax charge and they want to settle it via their pension scheme they must provide a formal notification to their scheme administrator. The scheme administrator will then deduct the tax charge from the scheme and pay it to HMRC, which they do through the Accounting For Tax (AFT) return. This is a quarterly report that works to a fixed timetable.
We are now into the final quarter of the year, which runs from 1 October to 31 December. The latest filing and payment date for this quarter is 14 January. The other quarters and filing dates are set out in the table below:
Quarter Filing/payment deadline
1 January to 31 March 15 May
1 April to 30 June 14 August
1 July to 30 September 14 November
1 October to 31 December 14 February
Here there is a bit of a quirk. Current HMRC guidance says that for voluntary Scheme Pays the tax charge must be with HMRC by the self-assessment deadline of 31 January. However, we know that in practice the tax charge must be paid in line with the AFT schedule.
Realistically, this means the member needs to notify their scheme administrator by 31 December at the latest to have a realistic chance of getting the tax charge paid in time for 31 January. Even then, it may depend on the scheme administrator’s own procedures and practices, particularly if they don’t file it until the deadline of 14 February.
If a member submits their notification to the scheme administrator in January, they might be of the view they’ve met the self-assessment deadline. This is unlikely to be the case, as the scheme administrator might not file the AFT for the first quarter, quite legitimately, until April or May. In the meantime, the client could be blissfully unaware they are clocking up late payment penalties from HMRC.
31 July 2018
The timescales for compulsory Scheme Pays, however, are more generous. For a member to meet the conditions of compulsory Scheme Pays, they can notify their scheme administrator any time up until 31 July in the calendar year following the end of the tax year in question. For 2016/17 tax year, this means 31 July 2018. Either way, whether it’s voluntary or compulsory Scheme Pays, the member must still include details of the charge in their self-assessment return.
31 December 2018
In terms of actually paying the tax charge, the guidance for compulsory Scheme Pays says that it doesn’t need to be paid until the AFT for 31 December in the calendar year after the end of the tax year in question. As such, the funds for the tax charge can end up staying in the pension scheme for close to two years from the end of the tax year in question.
So, all in all, while Scheme Pays does offer a flexible and pragmatic solution to paying an annual allowance tax charge, like many pension rules it is not without complications!
Paraplanners wanting to register their interest for the first tranche of applications for the Paraplanner Standard should get their...
Steve Bailey, director of compliance firm ATEB Consulting, points to three key areas paraplanners should be aware of when delivering suitability...
In the spirit of the season, in our last parameters survey of the year and for a bit of...