RPSM06109060 - Technical Pages: Annual allowance: April 2011: Paying the tax charge: Scheme pays a member’s annual allowance charge - The deadlines for ‘Scheme Pays’
The deadlines for ‘Scheme Pays’
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If a member decides to elect to require their scheme to pay all or part of their annual allowance charge then they will need to meet certain conditions and they will also need to give their scheme administrator notice that they want the scheme to pay their annual allowance charge (See RPSM06109040). This notice will need to be received by the scheme by a cut-off date if the scheme is to become jointly and severally liable to the annual allowance charge.
Once a scheme becomes jointly and severally liable to the member’s annual allowance charge then there are also deadlines for the scheme to include this liability on the Accounting for Tax return.
Notice given to the scheme administrator by the member
How the scheme accounts for their liability to an annual allowance charge under ‘Scheme Pays’
Including the payment on an Accounting for Tax (AFT) return and making payment
The member’s Self Assessment return
Notice given to the scheme administrator by the member
The member must notify the scheme that they wish to use ‘Scheme Pays’ by 31 July in the year following the tax year in which the annual allowance charge became due. Or alternatively, if the member is due to take their benefits then the member would have to give the scheme notice before the benefits are taken.
For the tax year 2011-12 only, this time limit is extended to 31 December 2013.
The member cannot notify the scheme that they wish to use scheme pays before the end of the tax year in which the annual allowance charge arises, unless
- they expect to take all of their benefits from the pension scheme in the tax year to which their liability relates when they must tell the pension scheme before they become entitled to those benefits; or
- the member must tell the pension scheme before they reach age 75 if they will reach age 75 in the tax year to which their liability relates and one or more of the following events happen in relation to their pension scheme at that age
-
- defined benefit rights not yet in payment in the pension scheme will remain undrawn,
- funds in an other money purchase arrangement or cash balance arrangement in the pension scheme that you have not yet drawn (‘uncrystallised funds’) will remain as uncrystallised funds,
- drawdown pension funds in the pension scheme that started after 5 April 2006 will still be in place.
How the scheme accounts for their liability to an annual allowance charge under ‘Scheme Pays’
Where a scheme administrator becomes jointly and severally liable to a member’s annual allowance charge under ‘Scheme Pays’ the tax charge should be included on the scheme’s accounting for tax (AFT) return - see RPSM12301310 for more information about the AFT.
The AFT return is a quarterly return and ordinarily the scheme administrator only needs to complete an AFT return if one or more of the tax charges that the scheme administrator is responsible for paying has arisen in a quarter.
Where the scheme administrator’s liability to a tax charge has arisen because of ‘Scheme Pays’ the reporting and payment of that liability can be made to a different deadline.
Including the payment on an Accounting for Tax (AFT) return and making payment
The scheme administrator will pay the tax and account for it on the accounting for tax (AFT) tax return but the member will also have to include it on their own self-assessment form.
Ordinarily, the scheme should account for the annual allowance tax charge on an AFT return no later than the quarter ending 31s t December of the year following the end of the tax year in which the tax charge arose. And the scheme must then file the AFT and pay the tax due by the second 14 February that follows the end of the tax year to which the liability relates.
For example, for a liability relating to the 2012-13 tax year, the scheme must include this on an AFT return by the quarter ending 31 December 2014 and file the AFT and pay the tax due by 14 February 2015
For 2011-12, this deadline has been extended. So for a liability relating to the 2011-12 tax year, the scheme must include the liability on an AFT return by the quarter ending 31 March 2014 and file the AFT and pay by 15 May 2014.
These deadlines are the latest that a scheme should complete the AFT and make the payment of the tax due. The scheme can decide to include the liability on an earlier AFT and if it does so, the date for payment of the tax is the normal payment date for that return.
For example, a member notifies their scheme that they require it to pay their annual allowance charge for 2011-12 and they give this notice on 15 September 2012. The scheme administrator decides to pay the tax before the statutory deadline of 31 March 2014 for filing the AFT return and includes the payment on the AFT submitted for the period 1 October - 31 December 2012. They must pay the tax due to HMRC by 14 February 2013.
If the scheme agrees to pay an amount of a member’s annual allowance charge liability on a voluntary basis, the scheme would not have joint and several liability for the tax charge and the liability for the annual allowance charge would remain with the member. The payment made by the scheme on a voluntary basis should therefore be paid to the member’s normal Self Assessment deadline. If the AFT process is being used to report and pay the tax being paid by the scheme on a voluntary basis, the scheme administrator will need to consider which quarterly period to use.
The member’s Self Assessment return
The member will need to include the amount of the annual allowance charge on their SA tax return which should be submitted by 31 January of the year following that in which the tax year ended at the latest. If their scheme has joint and several liability to or has voluntarily agreed to pay any part of the annual allowance charge then the member will need to include this amount on their tax return. The member will be liable for any remaining charge and this amount should be paid to the normal Self Assessment deadline. (See RPSM06109010)
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