Clock is ticking to claim tax relief on pension contributions
Contractors with personal pensions schemes who pay income tax at 40% or 50% were yesterday urged to claim the full tax relief on their contributions before it is too late.
In an alert to higher-rate taxpayers, accountancy firm Smith & Williamson said they have until April 5th to make a claim regarding contributions made in the 2008/09 tax year.
“HM Revenue & Customs automatically gives tax relief on pension contributions at the basic rate of 20%, but if you pay income tax at 40% or 50%, it is up to you to claim this difference.
“People frequently overlook this and pay more tax than they need as a result,” said the firm’s national tax director Richard Mannion.
He said a 40% income taxpayer who has contributed £8,000 net in pension contributions each year for the last three years, but not claimed higher rate relief, could now be due a refund of £6,000.
To make the claim for tax relief on personal pension contributions, which can be made in respect of the last four tax years, affected individuals must phone or write to HMRC noting their relevant details before the cut-off date of April 5th 2013.
But there’s another reason why the date should not be lost on contractors saving towards retirement, according to freelancers’ IFA firm ContractorMoney.
“April 5th is also the deadline for making use of any remaining annual allowance from the tax year 2009/10,” the firm said. “The carry-forward rules associated with the lowered annual pension allowance enable contractors to use any unused allowance from the previous three years.”
The IFA says this is particularly relevant to contractors due to their often flexible earnings as, thanks to the rule, they can contribute more or less to their pension each year depending on their outgoings, contract pay rate and other financial factors.
“Using the carry forward rules, you first use up this tax year’s £50,000 allowance but can then invest up to £50,000 from the annual allowances for each year from 2009/10,” explained ContractorMoney founder Tony Harris, addressing contractors.
“So unless you contributed up to this amount in that specific previous tax year, you should have room to exceed your £50,000 annual allowance for this year. If you have a large lump sum to invest, perhaps from retained profit or from current year income, then this is the last chance to use that unused allowance from 2009/10. Depending on your contributions over the last three years, you could therefore invest up to an additional £150,000 before April 5th using these carry forward rules.”