Time scales to pay the excess charge
Realistically the member will always pay the tax charge. However, they may have the option of paying the charge directly themselves or by the scheme pays option. There are very different deadline for each of these methods that would need to be met.
Pay personally or voluntary scheme pays
If the member elects to pay the excess payment themselves or if the scheme is willing to offer voluntary scheme pays (i.e., where the pension scheme does not have a legislative duty to pay) the payment/notification deadline is the same as self-assessment dates. This means the deadline will be 31 January following the tax year the excess payment tax charge was created.
However, for voluntary scheme pays this deadline is just to ensure the payment is recorded on the self-assessment and the actual deadline for the pension provider to receive the request for payment is 31 March following the self-assessment deadline. For example, an excess annual allowance charge in relation to tax year 2023/24 would need to be reported by 31 January 2025 on self-assessment and then the request to pay this would need to be submitted by 31 March 2025.
Statutory scheme pays
However, if the scheme has to offer the facility to pay the tax charge the timescales are longer. This, in part, is due to the longer process needed. The process would be;
- The member creates an annual allowance excess payment.
- The member has until 31 July in the year following the tax year the annual allowance tax charge relates to tell the scheme they want to use scheme pays.
- The pension scheme will record this on the AFT (accounting for tax) return applicable for that quarters return.
- The payment will be due 2 months and 14 days later.
For example, if an annual allowance tax charge is created in the tax year 2023/24 and this falls within the scheme pays regulations, the member will have to tell the scheme by 31 July 2025 at latest. The scheme will have a record of this and report this on the AFT return for the quarter ending on 30 September 2025. The tax charge needs then to be paid by 14 November 2025.
Late payment
Ultimately the member is liable for any late payment charges. If the tax due is not paid on time, there are 2 types of additional charge which can be made.
Firstly there is interest payable daily for late payment. This interest rate is set by HMRC and can be varied. The interest will be accrued from the date due until the date the tax charge is paid.
There is also a late payment penalty. This is applied where the tax charge has not been paid within 30 days of the due date. The charge will be 5% of the outstanding amount after 30 days. There will also be a 5% tax charge applied if still not paid after 6 and 12 months.
The adjustment to the member’s benefits
- A defined contribution (money purchase) scheme will simply deduct the amount paid from the value of the member’s fund.
- A defined benefit (final salary) scheme will adjust the benefits that have accrued for the member under the scheme.
- Any other kind of pension scheme will decide what adjustment is appropriate to how the benefits will be paid from the scheme.
The member’s pension scheme will be able to confirm how and when it will make the adjustment to the member’s benefits.
