Tax year-end can feel a little like groundhog day each year, and no matter how much you speak to clients about planning for the tax year-end there is always one or two who leave matters to the last minute. Despite that, each year you try to encourage most clients to be organised. So what are the key things that clients need to consider:
Although many clients will be paying a monthly contribution, it is worth speaking to them about making a top up contribution, especially if they are some way away from their annual allowance limit. Also, for clients who have the scope to use carry forward, it is important to look at what allowance they have left that covers the past three years as the earliest year will drop off once we are through this current tax year. Remember if the contribution is personal, and for tax relief to apply, the salary has to match or be more than the contribution being paid. If an employer contribution, then it does not matter what the member is earning.
Most providers have forms that need to be completed for a contribution to be paid and accepted. This isn’t because providers like to kill trees, but because HMRC need to know that the all important tax relief declaration applies to the individual making the contribution. Without this the provider will not be able to claim the tax relief from HMRC.
Timing is everything and a lot of providers will have a cut off point for accepting contributions, although most will accept them up to 5 April but we all have to remember that HMRC state this should be cleared funds. So, any contribution paid direct into the pension scheme bank account must have appeared in the account and be showing as cleared funds. It is no good if the payment has left the member’s account but not been received into the pension scheme account.
A lot of clients want to take their income at the end of the tax year this is so that the payment goes through with all of their personal allowances offset against the gross payment. This is treated as a month 12 payment as it in the last month of the tax year and HMRC does not then increase the tax rate because they think this one off payment is going to happen monthly across each month of that tax year. All pension payments are run through a payroll and all payroll departments also have a cut off point as to when they must receive funds each month and this is tied into the date the payroll is run.
So it is always wise to check with the provider what these dates are so you don’t get caught out. Also for self-invested personal pensions (SIPPs) and small self-administered schemes (SSASs) you need to make sure the investment manager / platform is aware of these dates so they make sure funds are disinvested in time to be sent over to the SIPP or SSAS bank account in time to be moved to the payroll account.
No matter how much planning, checking and reminding of clients goes on, there will always be those who miss the boat by not listening to you regarding these deadlines.
Elaine Turtle is director at DP Pensions