TQOTW Annual Allowance Charge
Q. Is there an Annual Allowance charge on employer pension contributions?

A. The Annual Allowance charge is calculated on the excess of contributions over the ‘pension input amount’ during the ‘pension input period’. From 6 April 2016 pension input periods are aligned with tax years.

The pension input amount is the combined contributions to all of the individual’s registered pension schemes, made by the individual, their employer or any other person on behalf of the individual.

For money purchase, defined contribution arrangements, the pension input is the number of actual contributions paid.  For tax relievable contributions it is the ‘grossed up’ amount that is added in calculating the pension input amount, even where the individual did not qualify for the relief, for example, they had insufficient Net Relevant Earnings. Employer contributions are always gross.

Defined benefit arrangements increases in value during the pension input period are included in the total pension input amount, after adjusting for debits or credits to the arrangement for the year.

The Annual Allowance charge is applied to the excess contributions over the individual’s Annual Allowance for the tax year at their marginal income tax rate (i.e. 20%/40%/45%).


If you have a tax query, why not contact the Tax Advice Line on 0844 892 2470 to discuss it. Our team of experts have a wealth of experience and can also provide a written consultancy service at £180 per hour plus VAT.

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Tax Advisor
0844 892 2470

Alexandra initially trained as an accountant, working in small general practice where she gained significant experience in corporate and personal tax compliance. After qualifying as a Chartered Accountant, Alexandra began to specialise in tax. She has worked in tax advisory and compliance roles in a large accountancy practice and a specialist tax consultancy practice, whilst developing her tax knowledge and gaining Chartered Tax Advisor qualification.

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