The examples assume that Mr Smith is making pension contributions under a retirement annuity contract and that he is a compliant individual, making all the correct payments at the right time.
Mr Smith's 1997-98 payments on account (POA) are £5,000 each. He pays the first 1997-98 POA on 31 January 1998. On 30 April 1998, Mr Smith sends in his 1997-98 return. He includes in that return a claim to carry back pension contributions of £4,000 paid on 20 April 1998 to 1997-98. This gives rise to relief of £1,600 (£4,000 @ 40% - tax rates etc of 1997-98). The return and claim are dealt with immediately.
The second payment on account of £5,000 will be due on 31 July 1998 and a balancing charge for 1997-98 of £4,000 will be due on 31 January 1999. Because tax for the earlier year (1997-98) remains due the relief for pension carry back will be available to set against the balancing charge due on 31 January 1999 thereby reducing the payment due from £4,000 to £2,400. The POAs for 1998-99 will be £7,000 each.
The POAs for 1997-98 will be adjusted to £4,750 each and there will be no balancing payment. A repayment of £250 will be due from the first POA. The relief will be set off against the second POA due on 31 July 1998 thereby reducing the payment due from £4,750 to £3,150. The POAs for 1998-99 will be £4,750 each.
In this case it is likely that the relief will be due only at the basic rate so the relief will be £920 (£4,000 @ 23%). The 1997-98 POAs will be adjusted to £2,750 each and there will be no balancing payment. A repayment of £2,250 will be due from the first POA. The relief will be set against the second POA due on 31 July 1998 thereby reducing the payment due from £2,750 to £1,830. The POAs for 1998-99 will be £2,750 each.
The facts are as before but the pension payment and claim to carry back is made on 30 August 1998 after the return has been submitted. That is, he makes a stand - alone claim. He pays both POAs due on 31 January 1998 and 31 July 1998.
The relief will be available to set against the balancing charge payment of £4,000 due on 31 January 1999 thereby reducing the payment due from £4,000 to £2,400. The POAs for 1998-99 will be £7,000 each.
POAs for 1997-98 will have been adjusted to £4,750 each with corresponding repayments due. A repayment of £1,600 will also be made. The POAs for 1998-99 will be £4,750 each.
POAs for 1997-98 will have been adjusted to £2,750 each with the corresponding repayments due. A repayment of £920 (assuming only basic rate relief) will also be made. The POAs for 1998-99 will be £2,750 each.
The facts are as example 1 except the pension payment and the claim to carry back are made on 15 March 1999.
A repayment of £1,600 will be made.
The second payment on account for 1998-99 of £7,000 becomes due on 31 July 1999. The relief of £1,600 will be set against that payment.
A repayment of £1,600 will be made.
