Thousands could face tax bill over undeclared pension contributions

Thousands of pension scheme members who have failed to declare pension contributions on their tax returns could face “a large bill when HMRC finally catches up with them”, Royal London director of policy, Steve Webb, has warned.

In its Pension Schemes Newsletter, HMRC stated that it knows that “scheme members are forgetting to declare details of their annual allowance charge on their self-assessment returns”.

When completing annual returns, taxpayers are asked to declare any pension contributions above the annual allowance (AA) (£40,000 per year) or the tapered AA (£10,000 per year), if applicable.

Webb has warned that potentially thousands of taxpayers could face an unexpected tax bill, as any pension contribution above the AA is charged at an individual’s marginal income tax rate (40 or 45 per cent).

In its newsletter, HMRC asked pension schemes to remind members of the requirement to declare this information on their tax return.

However, schemes will only notify members if they have breached the AA limit, which Webb said may catch members unaware if they are unsure of the rules around the tapered annual allowance.

Commenting, Webb said: “The shocking saga around the annual allowance for pension tax relief gets worse.

“We now have HMRC admitting that they know that people are forgetting to put information about their pension tax bills on their annual return.

“But filling in this tax return question requires individuals to understand the system, especially if they are affected by the tapered annual allowance.

“Thousands of people could be set to face huge tax bills because they have innocently failed to declare this information on their tax return.

“HMRC needs to get to the bottom of how many people have failed to declare this information and contact them immediately.”

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