Tx notes fa22 Final

June 2023 to March 2024 exams
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Where adjusted income 
exceeds £240,000
, the current year annual allowance is reduced by
‣
(adjusted income - £240,000) x 50%
‣
The current annual allowance cannot go below £4,000
Illustration 2 
For the tax year 2022-23, Juliet has a trading profit of £286,000. She has never previously been a 
member of a pension scheme.
Juliet’s tapered annual allowance for 2022-23 is £17,000, calculated as follows:
AA - (Adjusted income less 240,000) x 50%)) =
(40,000 – ((286,000 – 240,000) x 50%)).
 
Example 1 
Aston made the following gross amount of contributions into his pension scheme in earlier tax years:
2020/21
£62,000
2021/22
£30,000
2022/23
£25,000
Aston has an annual salary of £120,000. 
Compute the total pension input allowed for Aston for the 2022/23 tax year.



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June 2023 to March 2024 exams
Watch free ACCA TX lectures
4. Annual Allowance Charge 
As stated above, tax relief is given on pension contributions up to the level of relevant earnings of the 
taxpayer for a tax year. If the tax relieved contributions exceed the AA (including any unused 
allowances brought forward) there will be an AA charge, chargeable to income tax at the taxpayer’s 
marginal rate(s). This removes any relief on excessive contributions.
Excess contributions are:
๏
taxed as if extra income was received
๏
taxed after dividends at the non-savings rates, and
๏
this AA charge is added to the individual’s income tax liability.
Therefore, excess contributions su
ff
er tax as follows:
๏
those that fit into the unused basic rate band su
ff
er tax at 20%
๏
any remaining excess contributions that fit into the unused higher rate band su
ff
er tax at 40%
๏
any contributions in the additional rate band su
ff
er tax at 45%. 

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