Guidance

Pension Savings Taxation Allowance Guide 2019/20 accessible version

Updated 10 November 2020

Please note: If at the end of the process you end up owing tax on your pension savings for Tax Year 2019/20, please be reassured that there is no such thing as 100% taxation and your pension continues to grow.

Why have I received an Annual Allowance (AA) Pensions Savings Statement for Tax Year 2019/20?

You have received this letter because you have exceeded the HMRC governed tax-free savings (AA) standard limit of £40,000, or both your Threshold income is above £110,000 and Adjusted income is above £150,000 for Tax Year 2019/20, on your Armed Forces Pension Scheme (AFPS).

Exceeding this limit means that you may be liable to pay an AA tax charge, however, it does not automatically mean that you will pay a tax charge; this depends on several different factors. Veterans UK are the administrators for all AFPS schemes and this notification letter refers only to your AFPS benefits.

Your Letter

The letter from Veterans UK will apply to those who have breached the AA limit of £40,000 ‘or’ BOTH the threshold income exceeds £110,000 AND the adjusted income (threshold income plus PIA) exceeds £150,000.

All relevant information is contained within the letter.

The letter, together with this guide, will assist you in working out whether you are liable for an AA tax charge and details the steps you need to take if you are presented with a pension tax bill. Please take time to read your letter, especially the Frequently asked questions (FAQs) at Annex E. These provide more information on AA and Self-Assessment Tax Returns.

What do I need to do now?

You now need to work out whether you are liable for an AA tax charge. Follow the ‘Step-by-Step guide 1.

Enter the relevant information about your pension savings and income from all relevant sources into the HMRC Pension AA calculator.

The example presented in this guide only refers to your AFPS pension and Armed Forces salary. If you have income from other sources this also needs to be taken into account.

Step-by-Step guide 1: Are you liable for an AA tax charge?

1. Go to the Check if you have an annual allowance tax charge on your pension savings page and enter the relevant information about your pension savings and income from all relevant sources into the calculator.
2. Refer to Annex B in your letter: ‘Relevant information that you will need when using HMRC AA calculator’. You must select the years that you were a member of a registered pension scheme. You must ensure that you select at least the most recently ended, and the three previous Tax Years simultaneously.
3. When using the Government Annual Allowance Calculator you are required to tick tax year 2019/20 + the three previous years (tax years 2018/19, 2017/18 and 2016/17). If any of your Pension Input Amounts are above £40,000 you must tick 3 previous years from that tax year (for example, if your Pension Input Amounts for tax year 2016/17 is £50,000 you must select tax year 2015/16, 2014/15 and 2013/14). You must also select these earlier years if your Pension Input Amounts exceeded your individual, tapered AA for that tax year. This is extremely important as this may reduce your tax bill.
4. The previous Pension Input Amounts’ will be available on the AA notification letter. If you are unsure how to work out the PIA for previous tax years, please contact Veterans UK helpline for assistance at 0800 085 3600.
5. Then you will be asked ‘have you flexibly accessed your defined contribution pension savings?’. Please refer to Annex B - Type of Scheme in your letter for this information.
6. You will then be asked ‘Were you a member of a registered pension scheme between 6 April 2015 and 8 July 2015? If you were a member of an AFPS select ‘Yes’. This will be the case for the majority of Service personnel who have received an AA letter.
7. The next set of questions will follow a similar format. There will be 13 questions that ask How much your pension savings were between two specific financial years and whether your threshold income surpassed £110,000 in those same years. The years cover 2014 to 2020. To find this information please refer to the ‘Pension Savings’ section and table in Annex B to your letter.
8. When asked the questions about ‘threshold income’ it can be defined as all taxable income for example; rental income, non-military employment. Your AA statement from Veterans UK only shows your Service pay. If you receive other forms of taxable income this must be added to the Service pay income. If the total is over £110,000 select ‘Yes’.
9. You will then see a screen that summarises all of the information that you have entered for all the previous questions. Check your answers are correctly transposed from your notification letter. Change the numbers if required. Press ‘Calculate’ when correct.
10. You will then see the calculation results screen that details your results based on the information that you entered previously. Please note that at this point you may see a row labelled 6 April 2020 to 5 April 2021. Ignore this. This refers to the current tax year ‘2020/21’ and not the ‘2019/20’ tax year.
11. This incorrect figure detailed above is shown under the ‘amount on which tax is due’ heading. Please note this is NOT your tax bill. To work out your tax bill follow the ‘Step-by-Step guide 2: Working out your AFPS pension tax bill’.
12. If you end up with figure in “an amount which tax is due” column from tax year 2018/19, it is assumed that this was the ‘amount on which tax is due’ that you have processed.
13. If the ‘amount on which tax is due’ = £0 then no further action is required regarding your AFPS pension savings and income for Tax Year 2019/20. This does not include income from other sources.

Step-by-Step guide 2: Working out your AFPS pension tax bill

You should work out your AFPS pension tax bill by adding your salary and excess of annual allowances together. Please note: You should also add any additional private income (tax paid) to these figures as appropriate.

What happens if I have a tax bill?

Once you have calculated your tax bill, you will then need to submit this information on your Self-Assessment Tax Return.

Step-by-Step guide 3: Registering for a Self-Assessment Tax Return

To register for Self-Assessment online go to the Log in file self-assessment tax return page. Once registered you will:

• receive a letter with your 10-digit Unique Taxpayer Reference (UTR)
• be enrolled for the Self-Assessment online service at the same time
• receive a letter within 10 working days (21 days if you are abroad) with an activation code. You will need this when you first log in to your online account. You can replace an activation code if you do not receive it or you lose it.

Step-by-Step guide 4: completing your online Self-Assessment Tax Return

Do not confuse ‘Annual Allowance Pension Savings Tax’ with ‘Pension Income’.

If the Her Majesty’s Revenue and Customs calculator confirms you have a tax charge you should put the details in Tailor your Return and select the ‘Are you liable to pension savings tax charges or have you received payments from overseas pension schemes?’

Do not put your Annual Allowance figures in main self-assessment tax return, this would indicate that you are in receipt of your pension now and if you do this HMRC will expect you to pay the tax charge immediately rather than by the other options available: for example the Scheme Pays or adjusting your tax code for the following year.

1. Under the ‘Tailor your Return’ section of your online self-assessment tax return, ensure you select ‘Yes’ for: ‘Are you liable to pension savings tax charges or have you received payments from overseas pension schemes?.
2. Once you have tailored your return and included ‘Are you liable to pension savings tax charges…’ You now need to fill in your return using the calculations you have established.
3. The only box you need to complete is the AFPS Annual Allowance box, if you are NOT using Scheme Pays. If you have other sources of income, you should seek independent financial advice to assist in completing this tax return.
4. Next you need to enter the figure for how much AFPS AA Pension Savings tax you owe. Do not complete if you are not using Scheme Pays.
5. Then you must enter the relevant Pension Scheme Tax Reference number for your AFPS. The relevant code can be found in Annex E to your letter from Veterans UK. Place this number in this Box. Do not complete if you are not using Scheme Pays.
6. You can now submit your tax return.

Step-by-Step guide 4a: Completing your paper Self-Assessment Tax Return

Do not confuse ‘Annual Allowance Pension Savings Tax’ with ‘Pension Income’.

If the HMRC calculator confirms you have a tax charge you should put the details in the boxes on the “Additional Information” pages on the Self-Assessment Tax Form – SA101.

Do not put your Annual Allowance figures in main self-assessment tax return, this would indicate that you are in receipt of your pension now and if you do this HMRC will expect you to pay the tax charge immediately rather than by the other options available: i.e. Scheme Pays or adjusting your tax code for the following year. Please fill in the same boxes as advised above. This includes the relevant Pension Scheme Tax Reference number, AFPS annual allowance Pension Savings tax and AFPS Annual Allowance amount.

How to pay my tax bill

Payment of your tax bill is a personal issue. Read the supporting notes at Annex C to your letter.

The options available are:

• scheme Pays (if bill is less than 45% of the AFPS PIA for the relevant tax year) - Complete Annex D and send back to the AFPS administrators.
• pay HMRC Direct
• adjust your tax code
• combination of the above.

Before you pay HMRC direct or adjust your tax code, please confirm your calculations with DBS. On your letter Annex D you should declare the amount of tax you owe that you wish to be paid via Scheme Pays, in whole pounds only. This is your personal choice.

Disclaimer

This document has been provided as a guide to assist you with the AA process. If you are still in doubt regarding your Annual Allowance Pension Savings Tax, especially if you have other sources of income, you should seek independent financial advice.

Sources of Information

• Veterans UK helpline - 0800 085 3600
• Tax on your Private Pension Contributions
• Self-Assessment Tax Returns
• Paying your Self-Assessment Tax Bill