Pension tax relief for workers on low incomes
As we wait for the government to consider how best to provide fairness and equity for all through the tax system as it relates to Pensions tax relief, the results are in from a CIPP quick poll about how important tax relief was to employers when it came to choosing their pension scheme.
The quick poll ran for a short time from 1 to 12 October 2018 and asked:
'Did the availability of tax relief for your low paid workers factor into your/your company's pension scheme choice?'
- Of those who responded 14% said yes, it was a critical factor whereas 18% said yes it was a factor but not a critical one.
- 35% said that it was not an important factor and 4% recognise now that it should have been.
- The remaining 35% of respondents said that it was not applicable to their situation.
At the beginning of October, a letter was sent to Chancellor Philip Hammond by the Low Incomes Tax Reform Group (LITRG) calling on the Government to use the forthcoming Budget and Finance Bill to act on an inconsistency in tax rules which means that more than a million people on low incomes could be losing out on tax relief on their pension contributions.
Members of relief at source pension schemes (RAS) who do not pay income tax, typically those earning less than £11,850 each year, are entitled to basic rate tax relief on pension contributions up to £2,880 a year. However, this tax relief is not available for non-taxpayers in net pay arrangement schemes (NPA). This means that somebody in NPA, earning £11,850, paying the minimum contributions required under auto enrolment, is missing out on £34.91 in the current tax year as compared to someone in a RAS scheme.
The CIPP together with several key stakeholders in the pensions industry, including two former pensions ministers – Steve Webb and Ros Altmann, were signatories to the original letter.
The Budget on Monday 29 October provides an ideal platform for the Chancellor to make a positive announcement for reform to support those on low pay who are affected by this situation.
Pension scheme administrators encouraged to resume reporting of non-taxable lump sum payments
The HMRC Pensions team is encouraging Scheme Administrators to begin to report the payment of non-taxable lump sum payments following corrections being made to the RTI system.
The updates that have been made to the Real Time Information (RTI) online service will prevent P6 coding notices being incorrectly issued to beneficiaries in receipt of pension lump sum death benefits that are entirely non-taxable. HMRC have apologised for the length of time taken to resolve this issue.
Scheme administrators can now resume reporting non-taxable pension lump sum death benefit payments through RTI. For 2018 to 2019 scheme administrators can find guidance on how to report these payments in part 2.2.7 of the 2018 to 2019: Employer further guide to PAYE and National Insurance contributions - GOV.UK.
HMRC accept that it may take time for scheme administrators to amend their processes to report these payments again, but they want to encourage pension scheme administrators to start reporting these as soon as they're able to.
BEIS plans additional guidance for calculating holiday pay
The Department for Business, Energy and Industrial Strategy (BEIS) is planning to review the existing guidance on holiday pay. Whilst the advice on GOV.UK currently provides guidance for individuals looking for a basic understanding of their entitlement, it is widely accepted that it is not sufficient for employers to understand their full legal obligations (or for individuals with a more technical question). The intention is to produce more detailed technical guidance, aimed at employers, which can sit alongside the existing guidance.
Initial thinking is that the more detailed guidance should include:
- What to do if you don't have 12 weeks of pay data i.e. where someone is new in the job
- How to make the calculations where pay is made each calendar month, rather than on a weekly basis
- What date the reference period is calculated from
- How to handle holiday pay for those with irregular hours/zero hours contracts
- How to deal with those working on short contracts/temporary workers
- How to deal with unpaid weeks/periods of absence
- What pay elements need to be included for the EU derived entitlement versus the domestic entitlement
- How outstanding holiday pay is calculated for those leaving a job
- How to deal with term time workers
Where possible the plan is to include case studies, particularly for tricky but quite common situations like zero hours contracts or temporary workers.
If there are any other situations which you feel would benefit from more detailed guidance please do email with your suggestions and we shall pass them on to BEIS for consideration.