Pension Annual Allowance: ‘Scheme Pays’ key dates

If a pension scheme member incurs an annual allowance tax charge, they can pay it themselves via their self-assessment tax return (SATR) or they can pay it from their pension scheme via Scheme Pays.

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.

Either way, the member must provide a notification to their scheme administrator. The scheme administrator will then deduct the tax charge from the scheme and pay it to HMRC. 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.

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’. At this point, the deadlines for payment of any tax charges are not for several months, but it’s worth getting ahead of the curve now if you can.

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.

31 December 2017

The scheme administrator reports and pays the tax charge to HMRC via 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

31 January 2018

This is where the quirk in the timeline is. Current HMRC guidance says that 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 file the AFT at the latest possible moment.

If a member submits their notification to the scheme administrator in January, they might be of the view they’ve met the SATR 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

For a member to meet the conditions of compulsory Scheme Pays, they must notify their scheme administrator by 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. This is where we can see that the deadline for compulsory Scheme Pays is more generous. Either way, whether it’s voluntary or compulsory Scheme Pays, it’s essential to enter details of the charge in the client’s SATR.

31 December 2018

Under compulsory Scheme Pays, the tax charge 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!

Technical Resources Consultant

After completing his post-graduate studies at Lancaster University, Martin spent two years working for a leading insurance company before joining AJ Bell in April 2007. Martin worked initially on the AJ Bell Investcentre product before moving to a technical role in 2009.

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