Annual allowance ‘scheme pays’ – dates for your calendar

Since 2011, pension scheme members have been able to settle annual allowance tax charges via the ‘scheme pays’ mechanism. This allows the charge to be paid direct to HMRC from the pension scheme as opposed to being paid via self-assessment.

Clients can use this process to settle a charge that’s arisen from contributions or accrual in that particular pension scheme.

They can also use it to have one scheme pay a charge that arose due to contributions and accrual across more than one scheme. For example, a client could use a DC scheme like a SIPP to pay a charge where the charge was mostly incurred in a DB scheme.

However, it’s worth noting that there are two variations of scheme pays, and they work on different timescales. This can sometimes catch people out, potentially leading to late payment charges, so if you have clients with charges to pay it’s important to understand how the timing works, particularly as we start to approach the key dates.

Mandatory scheme pays

Pension input is the technical term for contributions and accrual. If the pension input in a particular scheme came to more than the annual allowance last tax year (£60,000) and the charge is more than £2,000, the client can go down the mandatory route.

The timescales for this are very generous. Provided your client notifies the scheme administrator by 31 July in the tax year following the end of the relevant tax year (i.e. 31 July 2025 for the 2023/24 tax year), the scheme becomes jointly liable for the charge. The scheme then has until 14 February the following year to pay it.

Voluntary scheme pays

Where the conditions for mandatory scheme pays don’t apply, clients can do voluntary scheme pays. The principle is the same – the scheme pays the charge – but it’s voluntary in the sense that schemes aren’t compelled to facilitate it.

The deadline for the charge is the self-assessment deadline, which is normally 31 January following the end of the tax year.

The challenge for clients is that pension schemes work on a different timescale. Under current regulations, they are required to report and pay annual allowance charges on a quarterly basis as per the table below.

Quarter Dates Filing and payment deadline 1 1 January – 31 March 15 May 2 1 April – 30 June 14 August 3 1 July – 30 September 14 November 4 1 October – 31 December 14 February

Therefore, in order to guarantee the charge is paid by the scheme to HMRC by 31 January, your client would have to notify the scheme administrator by 30 September.

Scheme administrators aren’t required to send Pension Savings Statements until 6 October – these are statements notifying members who’ve paid in more than the standard annual allowance or the money puchase annual allowance – so some clients might not be aware until it’s too late.

If they notified the scheme in Q4, the funds might not get to HMRC until 14 days after the deadline, meaning they’re at risk of a small late payment penalty.

However, I’ve also seen cases where clients have submitted a notification in January with the not-unreasonable expectation the funds would be with HMRC by the 31st only to learn about the quarterly reporting timescales.

Therefore, it’s one area where a bit of knowledge and forward planning can pay dividends.