If you’re completing your 2021/22 self-assessment tax return over the next few days, don’t forget to declare your pension contributions to help reduce your overall tax bill. The deadline to complete the self-assessment tax return by the end of January is fast-approaching, yet according to HMRC, 5.7 million people are yet to file theirs.
Taxpayers routinely omit vital pensions data from their tax returns, forfeiting valuable tax relief or underpaying tax.
Higher-rate taxpayers are most at risk of missing out. If you make regular contributions to a private pension, such as a stakeholder or personal plan, your provider will automatically claim basic-rate income-tax relief on your behalf, reducing the cost of contributing by 20%. But higher-rate and additional-rate taxpayers are entitled to a further 20% and 25% respectively; this relief can only be claimed by declaring your contributions on your annual tax return, so if you don’t provide this information – or you don’t make a return – you won’t get it. Around 250,000 taxpayers make this mistake.
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The other side of the coin is that anyone exceeding their annual pension contribution allowance must declare this on their tax return. For most people, the annual allowance is £40,000, though it maybe higher or lower depending on your circumstances. for example, if you are a high earner with an income of £240,000, you annul allowance could be just £4,000 per tax year.
If you’ve gone over your allowance – which by the way is your responsibility to check – you must tell HMRC. You’ll then pay a tax charge. Failing to declare this information means you’ll be paying too little tax, so interest and penalty charges could become payable when the error comes to light.
Already completed your tax return? Don't worry, you still have until 31 January 2023 and can still go in and make changes.
You can add pension details to your tax return under the ‘tax reliefs’ section.
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