# AVC tax change: tax treatment of 'front loaded' AVC payments thro payroll?



## dandy (14 Dec 2006)

I am a member of a defined benefit company pension and usually use some if not all of my annual bonus as an additional AVC, however I am now being told that Revenue no longer allow this as tax relief on AVC's is earned over the full year. If I take the bonus as cash I will lose 48% in tax, surley there is some way around this.


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## ClubMan (14 Dec 2006)

*Re: AVC tax change*

Who told you that _Revenue _had changed the rules? Doesn't pension tax/PRSI relief only apply to net relevant earnings? Are bonuses considered to be part of _NRE_?


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## Omega (14 Dec 2006)

*Re: AVC tax change*

There must be some mix-up here. I've just put a large proportion of my annual bonus into an AVC. Provided you're within the Revenue limits (dependant on age group) within the entire Tax Year and haven't already used up your allowance by contributing to AVC's throughout the year, you should be able to proceed.


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## dandy (14 Dec 2006)

*Re: AVC tax change*

The HR rep. who looks after the pension scheme informed us of this change last week, he sugested spreading the extra AVC over the year but I do not understand this.


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## Guest126 (14 Dec 2006)

*Re: AVC tax change*

I do not think that there has been such a tax change.

Can the HR Rep clarify when the change was effected?


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## Satanta (14 Dec 2006)

*Re: AVC tax change*



dandy said:


> .....but I do not understand this.


I'd suggest the first step be to approach the HR person and try and clarify exactly what was said/ment.


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## dandy (20 Dec 2006)

*Re: AVC tax change*

I have just spoken to the HR rep and he confirms that Revenue will no longer allow us to make additional AVC's early in the year as we earn relief over the whole year. HE said this has always been the case but they have decided to clamp down on it now. I can still go ahead and make the AVC but must claim the relief at the years end.


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## Omega (20 Dec 2006)

*Re: AVC tax change*

The Revenue change, as far as I understand it, is that you can no longer "front load" your AVC's within the year, i.e. you can contribute only up to the Revenue limit allowed as the year progresses. This happened me last year when I was stopped from putting a bonus, received in March, into AVC's. I had no problem doing this in 2004 but the Revenue tightened up the rules and I think that our payroll software was updated to reflect this. If it had been allowed, then I would have breached the revenue limit as it had accumulated up to that point in time, though not within the year as a whole - when viewed from the year-end perspective. To get around the problem, I simply re-structured the AVC contributions so that they cumulatively never exceeded the 30% limit (my age group) of total income earned up to that point in time within the tax year. It is still true that if, at year end, you have not yet reached your limit, you can top it up (to the limit) from bonuses, etc. Based on this experience, it seems that your HR person is mistaken. I know that when this issue arose in our company, our accounts/payroll people sought and received clarification from the Revenue.


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## ClubMan (20 Dec 2006)

*Re: AVC tax change*

Hmmm... that's interesting. Of course if you have unused pension tax relief from the previous tax year and are making contributions before October 31st of the current year then presumably you could use up that credit first?


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## Omega (21 Dec 2006)

*Re: AVC tax change*



ClubMan said:


> .....if you have unused pension tax relief from the previous tax year and are making contributions before October 31st of the current year then presumably you could use up that credit first?.....


Correct, though I think that you have to claim the tax back from Revenue yourself after year end in that instance (and PRSI from somewhere else, AFAIK), whereas if you contribute from salary in the current year, then the tax/PRSI benefits are immediate.


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## Guest126 (21 Dec 2006)

*Re: AVC tax change*

But there has been no "AVC tax change"!

It is just that the particular company the OP works for has tightened up its procedures...it has never been allowable for someone to put in a big AVC (for example) in January 2007 and get tax relief on it for the 2007 tax year in advance of them earning the necessary salary to make such an AVC allowable.


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## Omega (21 Dec 2006)

*Re: AVC tax change*

I was allowed to do just that in 2005 but tightened Revenue rules, as implemented in our payroll software, prevented it in 2006. Our HR people tell me that Revenue did permit "front-loading" in previous years but not from 2006 onwards.....


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## Guest126 (21 Dec 2006)

*Re: AVC tax change*

Sure what if someone put in a €20k AVC in Jan (their bonus for example) and then finished their job in Feb - they would have a massive over-contribution...I don't think Revenue ever allowed it to be done that way.


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## ajapale (21 Dec 2006)

I have expanded the title of the question to aid searching should this question arise again.

aj


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## efm (20 Mar 2007)

ajapale said:


> I have expanded the title of the question to aid searching should this question arise again.
> 
> aj


 
As justification for your rewording I have just seen this thread!

The scenario discussed above has just happened to me in this months payroll. I was unaware that "front-loading" an AVC contribution would cause an issue and blithley requested that my bonus be lodged to my pension.

Does anyone know what the normal process for getting the correct benefit is? In the normal course of events would the company payroll work in the reclaim over the coming months or will it be up to me to reclaim at year end? I have queried this with my own payroll but wanted to know what others experience is.


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