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Where Taxpayers and Advisers Meet

Carry Forward for Employer Pension Contribution Allowances?

BHConfused
Posts: 7
Joined: Sun Feb 02, 2020 10:03 am

Carry Forward for Employer Pension Contribution Allowances?

Postby BHConfused » Sun Mar 01, 2020 12:59 pm

Hi I understand that the £40,000 Pension Contribution Allowances can be carried forward. However, I am not sure if the following may be allowed?

In 2018/19 Employee was paid £8,500 plus NIL Pension Contribution.
In 2019/20 Employee will be paid £8,500 plus £80,000 Pension Contribution (being £40,000 for 2018/19 carried forward plus £40,000 for 2019/20).

I can see that this might well not be allowed as the Employee's earnings in 2018/19 would mean his contribution can be no more than £8,500, but please could somebody let me know for sure.

jerome.lane
Posts: 153
Joined: Mon Aug 12, 2019 8:41 am
Location: Camberley, Surrey
Contact:

Re: Carry Forward for Employer Pension Contribution Allowances?

Postby jerome.lane » Mon Mar 02, 2020 12:11 pm

The £40,000 limit is the maximum gross (£32,000 net) that an employee can contribute and receive tax relief for. Where the annual allowance is not used, it can be carried forward provided the employee was a member of a scheme. The employee can make up to four years worth of contributions in one tax year but they will only get tax relief in so far as their relevant income (broadly gross earnings) exceed £160,000 in the year of contribution; what they earn in previous years does not count towards income tax relief for the current year. The pension provider should be made aware that tax relief should only be claimed on the amount of relevant earnings. Some pension providers won't accept such payments. If it is the employer making the contribution, it should be easier to administer.
Jerome Lane
Tax Advisor
jerome.lane@stewartco.co.uk
Stewart&Co.
Chartered Accountants
Telephone: 01276 61203

jerome.lane
Posts: 153
Joined: Mon Aug 12, 2019 8:41 am
Location: Camberley, Surrey
Contact:

Re: Carry Forward for Employer Pension Contribution Allowances?

Postby jerome.lane » Mon Mar 02, 2020 12:16 pm

To be clearer, the employee will get tax relief on £6,800 net (£8,500 gross), even if they contribute £80,000.
Jerome Lane
Tax Advisor
jerome.lane@stewartco.co.uk
Stewart&Co.
Chartered Accountants
Telephone: 01276 61203

BHConfused
Posts: 7
Joined: Sun Feb 02, 2020 10:03 am

Re: Carry Forward for Employer Pension Contribution Allowances?

Postby BHConfused » Thu Mar 05, 2020 10:31 pm

Thank you but I'm not sure it quite answers my question. Maybe if I rephrase it slightly:

An employee has received £8,500 pay in 19/20. He also has non-employment income from other sources. Neither the employer nor the employee makes any contribution to the employee's pension in 19/20.

Come 20/21 that employee again earns £8,500 from the employer and again has non-employment income from other sources. Can the employer make a pension contribution of £80,000 to the employee's SIPP which will allow the employer to reduce his Corporation Tax bill accordingly, and the employee effectively not have to pay any income tax on that £80,000 contribution to his SIPP?

jerome.lane
Posts: 153
Joined: Mon Aug 12, 2019 8:41 am
Location: Camberley, Surrey
Contact:

Re: Carry Forward for Employer Pension Contribution Allowances?

Postby jerome.lane » Fri Mar 06, 2020 7:50 am

If the employee already had a pension scheme in place and has not made contributions in recent years, then if an employer makes a £80k contribution to their pension, there should be no income tax consequences for the employee. The employer contribution will only be allowable for corporation tax purposes provided it is made wholly and exclusively for the business.
Jerome Lane
Tax Advisor
jerome.lane@stewartco.co.uk
Stewart&Co.
Chartered Accountants
Telephone: 01276 61203

AGoodman
Posts: 997
Joined: Fri May 16, 2014 3:47 pm

Re: Carry Forward for Employer Pension Contribution Allowances?

Postby AGoodman » Thu Mar 19, 2020 1:05 pm

I don't know for certain (so I would rely on this even less than my other posts) but I think the "earnings" cap is entirely separate to the annual allowance cap.

That means you would be able to carry forward £40,000 of allowance from a year in which your earnings were less, and could transfer £80k in the following year in the scenario you mention below.


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