Ask the Experts: I paid into my pension in March for income I've just received. Does it matter?

Question

I recently became self-employed. I made a pension contribution in March based on work undertaken that month, but I have only just received payment for the work in the new financial year. Does this matter?

From:
AS/Paignton

Answer

Whether there is likely to be an issue with the pension contribution that was made in March based on earnings that had not yet been received would depend on how much had been paid into pensions overall, compared to the total taxable income that had already been received in the tax year.

The maximum gross amount that you can pay into your pension in the current 2017-2018 tax year is £40,000. Both personal and employer contributions count towards this annual allowance. The same limit also applied in the 2016-2017 tax year.

Regardless of the annual allowance, you cannot pay in more than you earn in a year. So if you earn £30,000 a year, you cannot pay more than this amount into a pension.

There is only likely to be an issue with the payment if all pension contributions made added up to more than 100% of your earnings during the period being assessed.

If your pension contributions did exceed this amount, HMRC is likely to ask you to pay back any tax relief you received on pension contributions in excess of your earnings.

Any payments for work that were received after 6 April 2017 will form part of your 2017-2018 tax year earnings.

Lisa Vaughan is a chartered financial planner at Fogwill & Jones.

This article was written in response to a reader’s question. If you have a financial or work/career question that has left you scratching your head ask our panel of experts who will aim to shine some light on the matter.

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Published: 07 July 2017
Last updated: 07 July 2017

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