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Carrying forward unused pension annual allowance
Money that you pay into a UK registered pension scheme or qualifying pension scheme receives tax relief. Personal pension contributions are paid from your earnings after tax and the pension provider reclaims the 20% tax suffered. All employers will soon be required to offer pension schemes to employees, so now is a good time to think about what you can contribute to your pension scheme.
Anyone can make (gross) contributions each year of £3,600, but above this threshold the maximum you can put into the fund is 100% of Net Relevant Earnings (NRE). Tax relief on contributions is only available up to the Annual Allowance (including any Annual Allowance carried forward).
Any unused annual allowance can be carried forward provided you were a member of a registered pension scheme, or qualifying overseas pension scheme during the year. The carry-forward relief can be used for any unused allowance from the previous 3 tax years. Assuming you were a member of a pension scheme, but didn’t have any contributions (personal or employer’s) in the tax years from 2011-12 up to 2013-/14, it would be possible to have total contributions of £190,000 in 2014/15.
Net Relevant Earnings
- Earnings from employment
- Benefits in kind
- Self-employed profits as a sole trader
- Share of profits from a partnership
- Any profit from furnished holidaylettings
- Less allowable business expenses
Alterledger can help
Alterledger can explain the tax implication of pension contributions for employers and individuals. Contact Alterledger or visit the website alterledger.com for more information.
A process started in 2012 which means eventually, all UK employers will be obliged to enrol all their eligible employees into a contributory pension scheme, known as Auto Enrolment. This obligation is already being phased in, starting with the biggest employers. The commencement date for an employer’s obligation to provide a contributory pension scheme is known as the staging date.
The government has said that no small employers (those with fewer than 50 employees) will be affected before the end of the current Parliament. The general election will be on 7th May so we are nearly there. Employers will be able to meet this obligation in any way they choose, but one way will be through a government-sponsored National Employment Savings Trust ( NEST ), a simple, low-cost scheme with very limited fund choice, and initial restrictions on transfers and contribution levels. NESTs will be operated by the NEST Corporation, a not-for-profit trustee body, and will be regulated by the Pensions Regulator.
Alterledger can help
Alterledger can help you prepare for your staging and manage your auto enrolment process along with your payroll once everything is up and running. Contact Alterledger or visit the website alterledger.com for more information.
The Pensions Regulator (TPR) has recently highlight the following problem areas:
- Employer forgeting to do the declaration of compliance within 5 months of staging, many employers wrongly assumed that registering on the Government Gateway was enough.
- Confusion caused by running multiple payrolls for the same employer for example weekly and monthly
- Completing the declaration of compliance but without choosing a pension provider
- Omitting self employed workers who have a contract to provide work personally
The Pension Regulator’s latest post…..
Our report on the impact of automatic enrolment reveals that 99% of all the UK’s largest employers met their legal duties without the need for us to use our statutory powers.
This is encouraging news as thousands of medium employers are currently reaching their staging dates. We will continue to work over the months ahead to ensure that medium and small employers understand their obligations, comply with their legal duties and continue to view non-compliance by other employers as unacceptable
Are you ready for Auto Enrolment?
Not every employee will want to be in Auto Enrolment, for example they may have their own pension arrangements.
But be very careful that you don’t induce or encourage them to opt out.
Most employees will want to be IN
Once staff have been enrolled into the pension scheme, they have one calendar month during which they can opt out and get a full refund of any contributions. This is known as the ‘opt-out period’. It starts from the whichever date is the later of:
- the date active membership was achieved, or
- the date they received your letter with the enrolment information.
Staff can’t opt out before the opt-out period starts or after it ends. If they decide to leave the scheme outside this period, they will instead be ‘ceasing active membership’. Whether they get a refund of contributions will depend on the pension scheme rules.
Staff opt out by giving you an ‘opt-out notice’. The opt-out notice is provided by the pension scheme. This is to avoid any employer involvement in the decision to opt out, which could lead to a breach of the law.
If an employer does anything to encourage or induce an employee or potential employee (at interview) to opt out they will be subject to harsh penalties.
If an employee does Opt Out they will be re-enrolled every 3 years.
You can choose to postpone automatic enrolment for up to three months for some or all of your staff. You must write to your staff to tell them you’re postponing automatic enrolment for them. One of the times you can postpone is from your staging date.
- You can postpone automatic enrolment for up to three months from certain dates.
- If you postpone from your staging date, your staging date does not change.
- If you choose to postpone from your staging date, you must write to tell the staff who will be postponed within six weeks of your staging date.
- Its unlikely that your payroll processing period will match your staging date, most staging dates are the 1st of the month but many payrolls are weekly, it makes sense to start auto enrolment on a pay processing date
- If you have short term staff or you are a temp agency you will probably postpone in order to avoid unnecessarily assessing staff who will leave within the postponement period
- You may also postpone to reduce auto enrolment pension payments and admin
- You can choose any business reason
When can you postpone?
You can only postpone automatic enrolment from:
- your staging date
- a staff member’s first day of employment
- the date a staff member first becomes eligible for automatic enrolment.
If you postpone from your staging date, it doesn’t change your staging date.
Staff whose automatic enrolment you’ve postponed can choose to opt in to your pension scheme during the postponement period.
The Pension Regulator has further details
Don’t mess this up, if you don’t get postponement right…..
- You will get a Warning
- Followed by a penalty of £400
- Followed by fines of £500 to £2,500 per day (depending on the number of employees)
Even the smallest business will get fines of £50 per day!
You will initially be given a warning, which will be followed by a fixed penalty of £400. Not too severe so far, but then the penalties shoot up for those companies who still fail to comply.
If you employ between 50 and 249 employees the fine for on-going non-compliance is a whopping £2,500 per day. For businesses with fewer employees, between five and 49 the penalty is still £500 per day and even the smallest of businesses will be fined £50 per day.
These are defined as sums which you pay to an employee in connection with his or her employment. They can be salary, wages, commission, bonuses, overtime. Statutory sick pay and maternity/paternity/adoption pay are included too. Benefits in kind (known as P11D benefits), for example, car and fuel, and tips and gratuities do not have to be included. In 2014/2015 Qualifying Earnings are earnings between £5772 and £41,865.
Employers are only required enrol employees earning over the Earnings Trigger of £10,000 (subject to age criteria) but employees can opt in once they earn above the lower level. According to Payroll and Benefits Magazine...
The AE process can be very administration-heavy and, unlike Real Time Information, employees and workers will have to be continually assessed. For example, employers will need to continuously monitor their workforce to identify when a jobholder must be automatically enrolled. In particular, the employer will need to monitor a worker’s age because this may trigger AE and opt-in activity.Although small employers will need at least six months before their staging date to prepare for AE, larger ones may need between 12 and 18 months.AE does not only apply to employees, but also to workers, including contractors who provide services on a personal basis but not as a company.
A survey by AutoenrolSME found that 6 out 10 businesses can’t cope and hired additional staff to manage the process!
A Poll in April 2014 of 200 businesses with 62 to 249 employees found:
63% of the employers didn’t know when their staging date was.
58% had not set up an auto-enrolment pension scheme.
90.5% of employers without an auto-enrolment pension scheme hadn’t even started researching one.
If you think you can ignore Auto Enrolment, think again, The Pensions Regulator will make you comply……..
We can issue guidance and instruction by telephone, email, letter and in person. Or we can send a warning letter confirming a set time frame for compliance with the duties.
Statutory notices can direct you to comply with your duties and / or pay any contributions you have missed or are late in paying. We have further discretionary powers which allow us to estimate and charge interest on unpaid contributions and direct you to calculate and / or pay unpaid contributions.
We can issue penalty notices to punish persistent and deliberate non-compliance.
A fixed penalty notice will be issued if you don’t comply with statutory notices, or if there’s sufficient evidence of a breach of the law. This is fixed at £400 and payable within a specific period.
We can also issue an escalating penalty notice for failure to comply with a statutory notice. This penalty has a prescribed daily rate of £50 to £10,000 depending on the number of staff you have.
We can issue a civil penalty for cases where you fail to pay contributions due. This is a financial penalty of up to £5,000 for individuals and up to £50,000 for organisations.
Where employers fail to comply with a compliance notice or there is evidence of a breach, we can issue a prohibited recruitment conduct penalty notice. This is currently set at a maximum fixed daily rate of £5,000 for organisations with over 250 staff. We aim to fully recover all the penalties that we issue.
We can take civil action through the court to recover penalties.
Employers who deliberately and wilfully fail to comply with their duties may be prosecuted.
We can also confiscate goods where there is a criminal conviction and restrain assets during criminal investigations.
The first case was Dunelm http://www.thepensionsregulator.gov.uk/docs/section-89-dunelm.pdf
Research shows that Accountants are most likely to be asked to help SME’s and Business Accountant (a service provided by CIMA Members in Practice) have created a booking service to assist SME’s in getting help https://business-accountant.com/auto-enrolment/
So don’t be scared by Auto Enrolment, don’t delay drawing up a project plan, take action now to avoid problems with the Pension Regulator later!
Your staging date is the date the new duties come into force for your business. It’s the date from when automatic enrolment activities must become ‘business as usual’, just like real-time PAYE.
Auto Enrolment isn’t easy, there is a lot to do before you Stage, here is a checklist (Pension Regulator) of activities you should do 6 months before Staging
- You can change your staging date to a later date if you:
- had fewer than 50 staff on 1 April 2012, and
- had, or were part of, a PAYE scheme that has more than 50 people in it.
All employers are able to bring their staging date forward. You may choose to do this to align it with other business practices, like the start of your financial year.
Or you might have several employers in a corporate group and want to align the smaller employers’ staging dates with the largest. If you plan to do this, you must notify The Pensions Regulator, which you can do online.
You can postpone assessing your workforce for up to 3 months, but this does not change your staging date and staff can choose to opt in during the postponement period.
A survey by AutoenrolSME found that 6 out 10 businesses can’t cope with the preparation for Auto Enrolment and hired additional staff to manage the process!
A Poll in April 2014 of 200 businesses with 62 to 249 employees found:
63% of the employers didn’t know when their staging date was!