Paying an Annual Allowance charge
If you exceed your Annual Allowance (AA) after you have used up any available AA from the previous three years, you will incur an AA tax charge on the excess. You are responsible for reporting any liability for an AA tax charge directly to HMRC via your self-assessment tax return. The AA tax charge is payable directly to HMRC.
If you have an AA tax charge to pay you can ask the Trustee to pay the part of your tax charge relating to your APS benefits under a ‘Scheme Pays’ agreement.Scheme Pays enables you to have your AA tax charge paid straight from your APS pension in return for a reduction in pension benefits – either by a deduction from your AVC account or an immediate reduction in your deferred pension.
APS provides two types of arrangement – a ‘mandatory’ Scheme Pays arrangement and a ‘voluntary’ Scheme Pays arrangement.
Our mandatory Scheme Pays arrangement
You must meet all of the following conditions to have a legal right to access the mandatory Scheme Pays arrangement:
- Your pension savings in APS must have exceeded the ‘standard’ annual allowance for the relevant tax year (i.e. the money purchase annual allowance and tapered annual allowance are not taken into account).
- Your total AA tax charge for the relevant tax year, in respect of all registered pension schemes you belong to, is more than £2,000.
- We receive your signed Scheme Pays agreement by the mandatory Scheme Pays deadline.
- You have not already drawn all of your pension benefits from the Scheme.
If you have made pension savings to more than one pension scheme, the maximum amount of AA tax charge you can ask APS to pay is based on the amount by which your pension savings in APS exceeded the AA. There is no minimum amount of charge that you can ask APS to pay but if the amount is less than £2,000 you must confirm that your overall AA tax charge is more than £2,000.
If you have a lower, tapered or money purchase AA (because you have earnings above the threshold income set by HMRC or you have drawn benefits from a money purchase pension scheme under the Government’s flexible access rules) the maximum amount of charge NAPS can be required to pay is still based on the amount by which your savings in NAPS exceed the ‘standard’ AA. Even if all of the conditions listed above have been met, if you have a reduced AA, this means that you cannot require APS to pay the full amount of your AA tax charge.
Deadline for mandatory Scheme Pays
To use the mandatory Scheme Pays facility you must enter into an agreement with the Trustee before 31 July in the year after the AA year to which the charge relates and before you start to receive all of your pension benefits from APS.
You must declare on your self-assessment tax return that the Scheme is paying the charge on your behalf.
Once you have entered into this agreement with the Trustee, you cannot change your mind.
Scheme Pays agreement pack
You can download a Scheme Pays information pack from the Forms page. You can find out more about how the Scheme Pays option works in the Scheme Pays Operating Rules.
Our voluntary Scheme Pays arrangement
If you do not meet one or more of the conditions for mandatory Scheme Pays, (for example, you are subject to, and have exceeded, the tapered AA but not the standard AA, or your total AA tax charge is less than £2,000) you can ask the Trustee to pay the part of your tax charge relating to your APS benefits under a voluntary Scheme Pays arrangement.
Unlike the mandatory Scheme Pays arrangement, payment of your AA tax charge under a voluntary Scheme Pays arrangement remains your sole responsibility. Any delay in the payment of your AA tax charge payment beyond your self-assessment tax return deadline will incur late payment interest and charges. APS takes no responsibility and assumes no liability for any such interest or charges, nor can they be settled by the Scheme as part of a Voluntary Scheme Pays arrangement.
Deadline for voluntary Scheme Pays
To use the voluntary Scheme Pays facility you must enter into an agreement with the Trustee before 31 December after the end of the AA year to which the charge relates and before you start to receive all of your pension benefits from APS.
You must declare on your self-assessment tax return that the Scheme is paying the charge on your behalf.
Once you have entered into this agreement with the Trustee, you cannot change your mind.
Scheme Pays agreement pack
You can download a Scheme Pays information pack from the Forms page. You can find out more about how the Scheme Pays option works in the Scheme Pays Operating Rules.