Thousands of savers are failing to report annual allowance breaches on their tax returns which leaves them at risk of missing out on tax relief or facing high tax bills, according to Royal London.

Last year HM Revenue & Customs said it was aware some people had not reported breaching the annual allowance, which is currently £40,000.

It warned that people who have used scheme pays, whereby their pension scheme pays the tax charge from their pension, must still declare this charge on their tax return.

Savers who fail to do this are at risk of receiving a large tax bill as anything above the annual allowance is charged at the individual’s income tax rate which could be 40 or 45 per cent.

A freedom of information request by Royal London has shown that in 2016-17, the latest year for which figures are available, 1,004 individuals failed to report the annual allowance tax charge on their tax return and declare that their pension scheme had paid this charge.

Steve Webb, former pensions minister and director of policy at Royal London, said as the number of people affected by scheme pays has grown rapidly since 2016-17, it was likely thousands of people were now failing to report this information.

He explained misreporting on tax returns could arise due to many savers not knowing what their own annual allowance was.

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