If you save into a pension, you should check if you need to fill out a tax return this January to ensure you get tax relief and avoid a hefty tax bill later on.
Taxpayers are not only required to declare income from sources such as self-employment and letting out property, but also pension contributions in certain situations.
Here, Which? explains what pension savers need to know about getting their self-assessment tax return right.
1. Claim higher-rate relief on pension contributions
This means that some of the money you would have paid tax on goes into your pension, rather than to HMRC.
The level of tax relief depends on what rate of income tax you pay. In England, Wales and Northern Ireland, this means that basic-rate taxpayers get 20% pension tax relief; higher-rate taxpayers get 40% and those who pay additional-rate tax get 45% pension tax relief. In Scotland, the pension tax relief follows the .
You'll need to check your pension scheme to see which method it uses for tax relief, as you may need to do some extra work to get the full tax relief you're entitled to.
There are two main ways to claim:
2. Declare contributions that exceed the annual allowance
The annual allowance has reduced dramatically over the last few years. In 2010-11 it stood at £255,000 but it was cut to £50,000 in 2011-12 before dropping to £40,000 in 2014-15.
In cases where pension contributions have exceeded the allowance, not only will you not get tax relief on the extra payments, but an annual allowance charge will apply.
The charge is normally added to the rest of your taxable income to work out your overall tax liability.
You'll need to fill out a self-assessment tax return to detail how much of your pension contributions exceed the annual allowance and work out how much is due.
A Freedom of Information (FOI) request by Royal London revealed in the 2016-17 tax year (the most recent year figures are available for), 1,004 individuals failed to report the annual allowance tax charge to HMRC on their tax return.
Sue has a 'net income' - her annual income less personal allowances - of £140,000.
Her total pension contribution for the year is£20,000 over the £40,000 annual allowance. This puts her total income for these purposes at £160,000.
You could be at greater risk of a tax charge because your annual allowance differs from the norm.
If you've already begun to draw your pension (even small amounts) this will reduce your annual allowance to £4,000.
Similarly, if you earn £150,000 or more in any given tax year, this will begin to 'taper' your annual allowance.
This applies to your 'adjusted income', which is made up of your salary, dividends, rental income, savings interest and any other income you receive.
You lose £1 of the annual allowance for every £2 of adjusted income, which means your allowance could reduce down to as little as £10,000.
Many are also unsure what unused allowance they can 'carry forward' from previous tax years. The use of 'carry forward' enables people to put more money into their pension without breaching the annual limit.
You can use it to tot up your tax bill, get tips on making savings and then submit your return directly to HMRC.