Calculating a Client's Tapered Annual Allowance

The annual allowance for pension contributions is currently £40,000, and after the recent budget announcement, it has been confirmed that this will stay the same into the 2018/19 tax year as well.

However, for anyone who is deemed a higher earner, this allowance may be restricted/tapered anywhere from the full £40,000 down to £10,000, based on the individual's Adjusted Income amount.

The calculations can be relatively easy for an individual with a simple salary and pension arrangement, but they can quickly become almost indecipherable and time consuming when an individual has a mixture of income types, occupational pension schemes, personal pension schemes etc, and you need to work out the individual's Net Income, Threshold Income, Adjusted Income, and then get confused between Adjusted Income and Adjusted Net Income and a multitude of other amounts required for a full Income Tax Calculation.taperedannualallowance1

The good news is that JCS can do all that work for you with a click of a button. Just make sure that you have selected to let JCS calculate Income Tax and NI Automatically for the client in question, and then click on "Details" next to Income Tax.

Looking at the full details of the Income Tax computation, it is possible to see total pension inputs, employer contributions, the calculation of the Annual Allowance (in this example, this has been tapered), as well as the amount of excess contributions and the charge made against excess contributions, in the current tax year.

So the next time you find yourself trying to calculate a client's Tapered Annual Allowance on a scrap of paper, plug the details into JCS and let it do all the hard work instead.