Scheme pays: mandatory or voluntary, the deadlines, and reporting the charge

Scheme pays lets a pension scheme pay some or all of a member's annual allowance charge to HMRC, in return for a reduction in the member's benefits in that scheme. It comes in two forms. Mandatory scheme pays is a statutory right: where two conditions are met and the member gives notice in time, the scheme must pay (FA 2004 s.237B; PTM056410). Voluntary scheme pays is anything a scheme agrees to pay outside that right. How the charge itself is worked, at the member's marginal rate, is covered in how the annual allowance charge is calculated.

When the member can require the scheme to pay

Both conditions in s.237B(1) must be met for the tax year:

• the member's annual allowance charge for the year is more than £2,000; and
• the member's pension input amount in that scheme, added across all their arrangements under it, is more than the annual allowance in s.228(1). That is the standard allowance, £60,000 for 2025/26: the tapered annual allowance and the money purchase annual allowance are ignored.

The second test is per scheme and against the standard figure, so the taper does not change it. A client tapered to a low allowance whose input to a scheme is above that tapered allowance but not above £60,000 has a charge but cannot require that scheme to pay any of it (PTM056410). Where the charge is worked on the money purchase annual allowance, both the £2,000 test and the amount the notice can cover use the charge that would arise if the ordinary annual allowance were applied instead (s.237B(2A); PTM056410). How the taper sets the allowance is in the tapered annual allowance, explained.

The scheme can be required to pay only the charge on its own input above the standard allowance, worked at the member's rates from the top band down (s.237B(3)–(4); PTM056410 has a worked example). The member can ask for less and pay the rest direct. If they ask for £2,000 or less, the notice must confirm that the total charge for the year is more than £2,000 (PTM056420).

The notice goes to the scheme administrator in writing, signed and dated. Among other details, it states the tax year, the amount the scheme is to pay and that the amount was worked at the proper rate. Once received it cannot be withdrawn, though it can be amended if the charge changes (s.237B(5); PTM056420). A scheme does not become liable during a Pension Protection Fund assessment period, or so far as the benefits it would have to reduce are protected guaranteed minimum pension rights, and it can apply to HMRC to be discharged (ss.237C, 237D; PTM056470).

Voluntary scheme pays

Where the conditions are not met, or the notice is late, a scheme may still agree to pay on a voluntary basis. That is at the scheme's discretion. The scheme does not become jointly liable, so the liability stays with the member and the payment should be made by the member's normal self assessment deadline. If the scheme pays without reducing the member's benefits, the member may face an unauthorised payments charge on the amount paid (PTM056410). Under either form, the reduction in benefits must be just and reasonable having regard to normal actuarial practice (s.237E for mandatory scheme pays; PTM056460 applies the same test to voluntary payments).

The member's deadline

The notice must be given not later than 31 July in the year following the year in which the tax year ends (s.237BA(2)). The 2025/26 tax year ends on 5 April 2026. The year following 2026 is 2027, so a 2025/26 notice is due by 31 July 2027. HMRC's own example runs the same way: a 2022/23 notice is due by 31 July 2024 (PTM056430). Ordinarily the notice cannot be given before the tax year ends.

Two cases move the date.

• Brought forward. No notice can be given once the member becomes entitled to all of their benefits under the scheme (s.237B(6)). A member about to take everything from the scheme has to give notice before then, for the current year or an earlier one, often on an estimated charge that is amended later (PTM056450).
• Extended. Sometimes a scheme issues a revised pension savings statement on or after 2 May in the year after the tax year, because it received late information from a third party or its rules changed. If the revised input brings the member within the two conditions, the notice is due within three months of the day the statement is given, or by the end of six years from the end of the tax year if that is earlier (s.237BA(3)–(5); PTM056430).

An amended notice has a longer limit: the scheme must receive it by the 31 July following the end of six years from the end of the tax year, which for 2025/26 is 31 July 2032 (PTM056440). A pension savings statement the scheme must send automatically is due by 6 October after the tax year (PTM167100); reading one is covered in the pension savings statement and carry forward.

The scheme's deadline to report and pay

A scheme that becomes liable reports and pays the charge on its quarterly Accounting for Tax return. It uses the later of the quarter ending 31 December of the year following the year in which the tax year ended, and the quarter after the one in which it received the notice (PTM056430). For a 2025/26 notice received by 31 July 2027, the later is the quarter ending 31 December 2027, so the return is filed and the tax paid by 14 February 2028. Where the quarter after receipt is the later one, as in HMRC's example of an extended-deadline notice, the scheme files and pays within 45 days of that quarter's end. A scheme can report on an earlier return if it chooses.

Reporting the charge on the tax return

The charge is reported on the member's own self assessment return whether or not a scheme pays it (PTM056200, PTM056430). For 2025/26 the return is due by 31 January 2027 at the latest, which is before the scheme pays notice deadline. HMRC's helpsheet HS345 covers the ‘Pension savings tax charges’ section on page Ai 4 of the additional information pages (SA101):

• box 10: the excess of pension savings over the annual allowance, even where a scheme pays some or all of the charge;
• box 11: the annual allowance charge that has been or will be paid by the scheme (the total, if more than one scheme is paying);
• box 12: the paying scheme's Pension Scheme Tax Reference, with any others in the ‘Any other information’ box on page TR 7 of the main return (SA100).

If the scheme pays arrangement is made, or grows, after the return is filed, so that box 11 is no longer right, HMRC has to be contacted to amend the return (HS345). Where pension input figures are not yet known, an estimate can be used, noted in ‘Any other information’ and the estimate box ticked (PTM056200). Any charge the scheme is not paying is paid by the normal self assessment deadline.

The member remains liable

The annual allowance charge is the individual's liability (s.237A(1)). Mandatory scheme pays adds the scheme to it: on receipt of the notice the scheme and the member become jointly and severally liable for the amount in the notice (s.237B(7)). The member remains liable. HS345 puts it as still liable for the whole amount, with a credit for what the scheme pays. If HMRC discharges the scheme, the member's liability is unaffected (s.237D(5)). Under voluntary scheme pays the scheme never shares the liability. Under either form, HMRC's guidance warns that if a scheme agreed to pay but did not, the member has to pay the charge, plus any penalties and interest if the deadline has been missed.

A worked charge

These figures come from ParaplanAI's pension engine, run on the 2025/26 tax-year figures for a client who is not a Scottish taxpayer. The client has employment income and one money purchase scheme, into which the employer paid a single contribution. The three previous years' allowances were fully used, so there is no carry forward.

Threshold income is not more than £200,000, so the taper cannot apply and the allowance is the standard one. The excess stacks on the client's taxable income and falls wholly in the higher-rate band, giving a charge of £10,000. That is more than £2,000, and the input to the scheme is more than £60,000, so both conditions are met.

With one scheme and no carry forward, the scheme's input above the standard allowance is the whole excess, so the maximum is the whole charge. The notice is due by 31 July 2027. If the client asks the scheme to pay all of it, the 2025/26 return shows:

• Box 10: £25,000, the excess over the annual allowance;
• Box 11: £10,000, the charge the scheme will pay;
• Box 12: the scheme's Pension Scheme Tax Reference.

Test the position on the annual allowance calculator, or the tapered annual allowance calculator where the client's income is near the taper limits. For planning and illustration only; this guide describes the rules and is not tax or financial advice.

FA 2004 ss.237A–237E · PTM056410 (scheme pays: general) · PTM056420 (member notice) · PTM056430 (deadlines) · PTM056440 (amended notices) · PTM056450 (entitlement to all benefits) · PTM056460 (benefit adjustment) · PTM056470 (when the scheme does not have to pay) · PTM056200 (telling HMRC) · HS345