RPSM06109090 - Technical Pages: Annual allowance: April 2011: Paying the tax charge: Scheme pays a member’s annual allowance charge: When the scheme does not have to pay

When the scheme administrator does not have to pay the member’s annual allowance liability

The scheme administrator will have to pay the member’s annual allowance liability provided

• the member’s total annual allowance charge liability for the tax year exceeds £2,000,
• the amount of their total pension input amount in that scheme alone was more than the annual allowance (i.e. £50,000) for the year, and
• the member has given a notice to the scheme administrator requiring the scheme to pay the liability and this notice has been received by the scheme on time.

A scheme administrator can refuse to pay a member’s annual allowance charge even though they meet the conditions to be able to require the scheme to pay as set out below.

A scheme administrator can refuse to pay in the following circumstances.

• The pension scheme is being assessed by the Pension Protection Fund at the time the member requires it to pay.
• The member has already required the scheme administrator to pay but before the tax is paid to HMRC the scheme starts to get assessed by Pension Protection Fund.
• The pension scheme would be unable to make an adjustment to the member’s benefits in the scheme to take account of the tax paid because the benefits they would otherwise have needed to adjust to take account of the tax paid include ‘contracted-out’ rights (GMPs and/or protected rights) that are subject to section 159 of the Pension Schemes Act 1993 or section 155 of the Pension Schemes (Northern Ireland) Act 1993.

Discharge of the scheme administrator’s liability

In specific circumstances the scheme administrator may also apply to HMRC for a discharge of their liability to pay the member’s annual allowance charge. The grounds for doing this are

• that to do so would substantially harm the interests of the members of the scheme, or
• it would not otherwise be reasonable for the scheme to pay the member’s charge (for example, where the value of the member’s benefits in the scheme have fallen and there are insufficient funds in the scheme to pay the amount of tax the member has asked the scheme to pay)

HMRC will notify the scheme administrator of their decision and whether the scheme will be discharged of their liability for the annual allowance charge. Where the scheme administrator is discharged of their liability then the member will become solely liable to the annual allowance charge.

Where there has been a transfer of all the sums and assets held under the scheme before the notice is given to the scheme administrator.

Where a member meets the requirements that would mean that they could notify their scheme that they require them to pay their annual allowance charge but before they can give that notice the benefit rights for the member and all of the other members of the pension scheme are transferred to another pension scheme (for example, following an employer re-organising its pension schemes), the member can ask the other (‘new’) pension scheme to pay instead of the scheme under which their annual allowance charge arose. The member’s notice to the other (‘new’) scheme must be given on time - i.e. the same deadline that would have applied to their original pension scheme had the transfer not occurred.