Advanced Taxation (UK) · Statutory obligations, time limits and the implications of non-compliance

Pension Scheme Limits and Annual Allowance Charge Reporting for ACCA ATX

Updated 11 October 2026 · Fact-checked

The annual allowance caps tax-relieved pension saving in each tax year. For 2025/26 it is £60,000, reduced by £1 for every £2 of adjusted income over £260,000, down to a minimum of £10,000. Unused allowance from the previous three years can be carried forward. Any excess is taxed as income and reported on the self assessment return.

Understand Pension Scheme Limits and Annual Allowance Charge Reporting

The annual allowance limits how much can be paid into pensions each tax year with tax relief. It counts the total pension input for the year: the individual's own gross contributions plus employer contributions. Under a defined contribution scheme, that is simply what is paid in.

The tax tables give the figures. The annual allowance was £40,000 for 2022/23 and £60,000 for 2023/24 to 2025/26. The minimum allowance is £10,000. The threshold income limit is £200,000 and the income limit is £260,000. Use the tables in the exam. Do not rely on memory.

High earners face tapering. The allowance is cut only if both tests are met. First, threshold income must be over £200,000. Second, adjusted income must be over £260,000. Threshold income is broadly net income less the individual's gross personal pension contributions. Adjusted income is broadly net income plus all pension contributions, including the employer's. The allowance falls by £1 for every £2 of adjusted income over £260,000, and never below £10,000.

If the input is more than the annual allowance, you can use carry forward. You may use unused allowance from the previous three tax years, but only if you were a member of a registered pension scheme in each year you use. Use the current year's allowance first. Then use the earliest of the three years first. Each earlier year's unused amount is worked out using that year's own allowance.

Any excess still left is the annual allowance charge. It is added to the individual's income and taxed at their marginal rates, as the top slice. The individual reports it on the self assessment return, and it is paid with the balancing payment. Tax relief on personal contributions is a separate rule. It is limited to the higher of relevant earnings and £3,600 gross.

Do not confuse this with the old lifetime allowance. That was a limit on total pension fund value. The lifetime allowance charge was removed from 6 April 2024. The annual allowance still limits what you pay in each year.

Key rules to remember

Standard annual allowance: 2022/23 = £40,000; 2023/24 to 2025/26 = £60,000; Take the figure from the tax tables. Carry forward needs each earlier year's own allowance.
Tapering tests: Taper applies only if threshold income > £200,000 AND adjusted income > £260,000; If threshold income is £200,000 or less, there is no taper, however high adjusted income is.
Tapered annual allowance: Allowance = £60,000 − ((adjusted income − £260,000) ÷ 2), minimum £10,000; The maximum reduction is £50,000. It is reached when adjusted income is £360,000.
Threshold income: Net income − gross personal pension contributions (relief at source); Employer contributions do not reduce threshold income. Treat salary sacrifice carefully, as the question directs.
Adjusted income: Net income + employer contributions + employee contributions under net pay arrangements; A relief at source contribution is already outside net income, so do not double count it.
Excess before carry forward: Pension input − annual allowance for the year; If this is zero or negative, there is no charge and unused allowance can be carried forward.
Carry forward: Unused allowance = allowance for that year − pension input for that year, for each of the previous 3 years; Use the current year first, then the earliest of the three years. Needs scheme membership in the year.
Annual allowance charge: Excess after carry forward × marginal rate(s), as the top slice of income; Report on the self assessment return. Scheme pays may be used in some cases.
Relief on personal contributions: Gross contribution qualifying for relief ≤ higher of relevant earnings and £3,600; Relief at source: pay 80% net, then gross up by 100 ÷ 80. Employer contributions are not capped by earnings in this way.

How to solve Pension Scheme Limits and Annual Allowance Charge Reporting questions

Use this order for any annual allowance question. Write each figure on its own line so you pick up the method marks.

1Work out the pension input for the tax year. Add the individual's gross contributions and the employer's contributions. Gross up net payments under relief at source by 100 ÷ 80.
2Find the annual allowance for the year from the tax tables.
3Test for tapering. Compute threshold income first. If it is £200,000 or less, stop and use the full allowance. If it is over £200,000, compute adjusted income.
4If adjusted income is over £260,000, reduce the allowance by £1 for every £2 of excess, with a floor of £10,000.
5Compare input with allowance. If input is within the allowance, there is no charge. Note the unused amount for carry forward.
6If there is an excess, apply carry forward. Use the current year first. Then take unused amounts from the earliest of the previous three years, using each year's own allowance. Check scheme membership.
7Tax any remaining excess at the individual's marginal rate(s) as the top slice of income. State the charge.
8State how it is reported and paid: on the self assessment return, due by 31 January after the tax year if filing online, with the balancing payment. Mention scheme pays if the question gives scheme facts.

Quickest way: Five-line annual allowance check

When to use it: Use when a Section A or Section B requirement asks whether there is a charge, or asks for a charge figure, and time is short.

Line 1: Input = gross personal + employer contributions.
Line 2: Allowance = £60,000 (or the year's figure). If threshold income > £200,000, deduct (adjusted income − £260,000) ÷ 2, floor £10,000.
Line 3: Excess = Input − Allowance. If nil or negative, write 'no charge' and stop.
Line 4: Carry forward, oldest first, from the three prior years. Write each year's allowance, input and unused figure.
Line 5: Charge = remaining excess × marginal rate. Add one sentence on reporting on the return and payment by 31 January.

Common mistakes in Pension Scheme Limits and Annual Allowance Charge Reporting

Applying the taper when only one test is met.
Students see adjusted income over £260,000 and cut the allowance straight away.
Fix: Always test threshold income over £200,000 first. Both tests must be met before you reduce the allowance.
Using £60,000 for every carry forward year.
Students remember the current figure and use it for all years.
Fix: Use £40,000 for 2022/23 and £60,000 for 2023/24 to 2025/26, as the tax table shows. Check whether an earlier year was tapered, too.
Using carry forward in the wrong order.
Students start with the most recent year because it feels natural.
Fix: Use the current year's allowance in full first. Then use the earliest of the three previous years, then the next.
Leaving out the employer's contributions from the pension input.
Students focus on what the individual pays personally.
Fix: Annual allowance input includes employer contributions. Add them to the individual's gross contributions every time.
Forgetting to gross up relief at source payments.
The question gives the amount actually paid, and students use it as is.
Fix: Gross up the net amount by 100 ÷ 80. For example, £40,000 paid becomes £50,000 gross.
Capping employer contributions at relevant earnings, or mixing the £3,600 limit into the allowance test.
Students blend the rules on relief with the rules on the allowance.
Fix: Keep two tests apart. The earnings limit (or £3,600 gross with no earnings) governs relief on personal contributions. The annual allowance governs total input.

Worked examples

Example 1

Priya has 2025/26 adjusted income of £310,000 and threshold income of £230,000. Her total pension input for 2025/26 is £50,000. She was a member of a registered pension scheme in the three previous years. Her pension input was £30,000 in 2022/23, £60,000 in 2023/24 and £57,000 in 2024/25. Assume none of those years was tapered. She is an additional rate taxpayer and the whole excess falls in the 45% band. Compute any annual allowance charge for 2025/26.

Show the solution

Threshold income £230,000 is over £200,000, and adjusted income £310,000 is over £260,000. So the taper applies.
Reduction = (£310,000 − £260,000) ÷ 2 = £25,000.
Tapered allowance = £60,000 − £25,000 = £35,000. This is above the £10,000 minimum.
Excess = £50,000 − £35,000 = £15,000.
Carry forward, earliest year first. 2022/23: £40,000 − £30,000 = £10,000 unused. 2023/24: £60,000 − £60,000 = nil. 2024/25: £60,000 − £57,000 = £3,000 unused.
Total available = £10,000 + £3,000 = £13,000. Use the whole £13,000.
Remaining excess = £15,000 − £13,000 = £2,000.
Charge = £2,000 × 45% = £900.

Answer: The annual allowance charge is £900. Priya reports it on her 2025/26 self assessment return and pays it with her balancing payment by 31 January 2027.

Example 2

Daniel is a company director. For 2025/26 his adjusted income is £400,000 and his threshold income is £320,000. His employer pays £35,000 into his pension and he pays £8,000 net under relief at source. He has no unused allowance from earlier years. His marginal rate on the excess is 45%. Compute the annual allowance charge and say how he reports it.

Show the solution

Gross personal contribution = £8,000 × 100 ÷ 80 = £10,000.
Total pension input = £35,000 + £10,000 = £45,000.
Both taper tests are met: threshold income £320,000 > £200,000 and adjusted income £400,000 > £260,000.
Reduction = (£400,000 − £260,000) ÷ 2 = £70,000. This is more than the £50,000 maximum reduction, so the allowance falls to the minimum.
Annual allowance = £60,000 − £50,000 = £10,000. This equals the £10,000 minimum allowance.
Excess = £45,000 − £10,000 = £35,000. There is no carry forward available.
Charge = £35,000 × 45% = £15,750.

Answer: The annual allowance charge is £15,750. Daniel reports the excess on the pension pages of his self assessment return, and pays the charge by 31 January following the tax year if he files online. He may be able to ask the scheme to pay it if the scheme conditions are met.

Exam tips

Copy the pension limits from the tax tables in the exam. Write the figure and the year beside it, so the marker sees the right limit was used.
Show both taper tests separately. Many marks go for stating threshold income and adjusted income, even when one test fails.
In planning questions, show the effect of extra contributions. Compute input, allowance, unused amount and charge for each option.
Add one sentence on compliance: the charge goes on the self assessment return and is paid by 31 January after the tax year. Professional skills marks reward a clear, usable recommendation.
If the question gives only past input figures, set out a small table of the three prior years with allowance, input and unused amount before you use carry forward.

Practice questions from Statutory obligations, time limits and the implications of non-compliance

Pension Scheme Limits and Annual Allowance Charge Reporting in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

ACCA Applied SkillsPension Contributions and Annual Allowance

Pension Scheme Limits and Annual Allowance Charge Reporting: frequently asked questions

How does carry forward work for the pension annual allowance?

You use the current year's allowance first. If input is higher, you use unused allowance from the previous three tax years, earliest year first. You must have been a member of a registered pension scheme in each year you use.

How do I calculate the tapered annual allowance?

First check that threshold income is over £200,000 and adjusted income is over £260,000. Then reduce £60,000 by £1 for every £2 that adjusted income is over £260,000. The allowance never falls below £10,000.

How is an annual allowance charge reported and paid?

The excess is added to income and taxed at the individual's marginal rates as the top slice. It is reported on the self assessment return and is normally paid by 31 January following the tax year. In some cases the scheme may pay it instead.

What is the difference between the annual allowance and the lifetime allowance?

The annual allowance limits how much can go into pensions with tax relief in a tax year. The lifetime allowance was a limit on the total value of pension benefits, and its charge was removed from 6 April 2024. For ATX-UK, focus on the annual allowance.