17 July 2023
If you exceed the annual allowance in any one tax year and are unable to use unused allowance from previous tax years to offset this*, you would usually pay the annual allowance charge direct from your income through tax Self-Assessment.
However, you can also ask the Fund to pay the charge on your behalf, provided certain conditions are met. If this is allowed, an amount equal to the charge will be paid by the Fund directly to HMRC. This is known as ‘Scheme Pays’ and will reduce the size of your benefit from the Fund at retirement. There are different deadlines for applying for Scheme Pays, depending on whether you exceeded the standard annual allowance or one of the other annual allowances.
- If you exceed the standard annual allowance, the Scheme Pays form must be received by 31 July in the year following the year in which the relevant tax year ended. So, if your tax charge relates to the 2022/23 tax year, the administrator will need the form by 31 July 2024.
- If you qualify for Voluntary Scheme Pays (where the charge is less than £2,000) or exceed the tapered or money purchase annual allowance, your Scheme Pays form must be received by 30 November following the end of the tax year. So, if your tax charge relates to the 2022/23 tax year, the administrator will need the form by 30 November 2023.
In the DB Section, Scheme Pays will reduce your pension available at retirement or, alternatively, you may choose to pay the charge from your AVC or Bonus Choice account, which will reduce the size of these accounts.
In the DC Section, Scheme Pays will reduce the size of your DC pension account.
*Carry forward is not available if you have triggered the money purchase annual allowance.