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According to a new report, high earners could face large tax bills if they fail to correctly declare pension contributions on their 2018/19 tax returns.

On self-assessment tax returns, taxpayers are asked whether they have put any money into a pension scheme above the annual pensions allowance.

For most, this allowance is £40,000; however, for every £2 of income above £150,000, a high earner’s allowance is reduced by £1 to give an alternative figure known as the tapered annual allowance.

The maximum reduction is £30,000, so additional-rate taxpayers who earned more than £210,000 in 2018/19 will see their tapered annual allowance reduced to £10,000.

Any pension contributions exceeding an individual’s tapered annual allowance will be charged at the taxpayer’s marginal rate, usually 40% or 45%.

Download our Guide to the Tapered Annual Allowance to better understand the rules and see if you may be affected.

In its report, Royal London claims that a lack of understanding about how the tapered annual allowance works is having dire consequences for those affected.

It suggests these complexities are resulting in some taxpayers being unable to answer how much money has been put into their pension scheme.

Steve Webb, Director of Policy at Royal London, said:

“HMRC admits 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.”

The deadline to submit tax returns relating to 2018/19 through self-assessment is at midnight on 31 January 2020.

We can help

Download our Guide to the Tapered Annual Allowance or give one of our friendly advisers a call today on 01483 205890 for strategic tax planning advice.