Tx notes fa22 Final

occupational scheme
tax relief is given at source 
under the “net pay arrangement”. The employer will deduct the gross contribution from the 
individual’s employment income before computing the tax to be deducted under PAYE. 
Illustration 1
If an employee has a gross annual salary of £25,000 and wants to contribute £1,000 into his 
occupational pension scheme, the employer, over the tax year, will pay £1,000 into the pension 
scheme and put a (net pay) salary of £24,000 through PAYE. Tax relief will be fully available as the 
gross contribution does not exceed £3,600.
This would be presented on the Income Tax Computation as a salary of £25,000 less a pension 
contribution of £1,000.
3. Annual Allowance (AA) 
Although tax relief is available on pension contributions up to the amount of relevant earnings for a 
particular tax year, the AA acts as an overall annual limit for total gross pension contributions. Where 
tax relieved contributions are paid in excess of the AA (including any brought forward unused 
allowances - see below)), then there will be an annual allowance charge (see section 3). This charge 
is subject to income tax at a person’s marginal rates.
The AA for each year is 
£40,000
(this information will be provided in the tax rates and allowances 
section of the exam paper). 
If the AA for a year is not fully utilised and the taxpayer was a member of a pension scheme in that 
year, it is possible to carry forward any unused amount for 3 years. Pension contributions made in a 
tax year will firstly use the AA of that tax year followed by the unused AA of the previous 3 tax years, 
used on a FIFO basis.
Restriction of the annual allowance for high income individuals 
The normal annual allowance of £40,000 however, is gradually reduced for individuals with high 
income
Adjusted income
is net income plus any employee contributions to occupational pension schemes 
which will have been deducted in calculating net income, plus any employer contributions to either 
occupational or personal pension schemes. 

---

93
Only on 
OpenTuition
you can find: Free ACCA notes 
•
Free ACCA lectures 
•
Free ACCA tests 
•
Free ACCA tutor support 
•
The largest ACCA community