By David Scholey, Regional Manager South East.
It’s that time of year when letters from Veterans UK detailing breaches of Annual Allowance taxation rules are landing on the doormats of effected serving personnel. Most commonly these letters are sent out to senior Officers and those relatively recently promoted to Commanders as well as to MODOs. The letter from Veterans UK is highlighting that there has been a breach in Annual Allowance rules. It is not necessarily saying that there will be a tax bill. The laid down procedure in the letter and in the Annual Allowance Guide must be followed in order to ascertain if there is a bill.
If it turns out that you are liable for a tax bill on the AA breach, then you have a choice over how to pay; You may pay yourself or, if it is over £2,000, you may ask the pension provider to pay using the ‘Scheme Pays’ facility. This way, Veterans UK will pay the bill up front and recover from you, by reducing the amount of pension you are entitled to for life. You can see the effect of Scheme Pays on the AFPS Pensions Calculator To do so, use the calculator as normal and when it shows the output pages, scroll down to the ‘Annual Allowance’ section. Enter that, inputting the information it requires, which is all contained in your breach letter. Select the ‘Scheme Pays’ option. It will then show your pension entitlement before and after using the scheme.
Be aware that if there is a bill, you must register for and complete Self-Assessment, even if you have elected to use Scheme Pays. It can take time to register and then get a Unique Taxpayer Reference (UTR), so don’t leave it too late. Self-Assessment returns for 2018/19 tax year have to be completed by 31 January 2020.
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