HMRC Admits Pensions Tax Blunder

5 December 2018

HMRC Admits Pensions Tax Blunder Following calls by two former pension ministers to close a pensions tax loophole, the government has admitted that some savers have been receiving tax relief twice, while others aren't receiving what they are due.

In October, Baroness Ros Altmann and Sir Steve Webb sent a letter to the Chancellor of the Exchequer Philip Hammond urging him to address the issues surrounding tax relief. "It is essential that the government takes decisive action", the letter said.

The government has now admitted that there are issues with pensions taxation in one of HMRC's latest newsletters published in November. The HMRC says:

"We're aware of issues with giving tax relief to scheme members on their pension contributions. As a result, some scheme members are receiving tax relief twice and others are not getting the tax relief they're due."

"There are two main ways that pension scheme members can get tax relief on contributions to their registered pension schemes: through the relief at source method or by the net pay arrangement. In schemes that operate relief at source, members make their contributions from their pay after Income Tax has been deducted and the scheme administrator claims the basic rate relief back from HMRC and pays this into their pension scheme on the member's behalf."

"In schemes that operate the net pay arrangement, members get tax relief by making their contributions before their pay is taxed so the member gets the tax relief straightaway. Where schemes give tax relief through the net pay arrangement, some member contributions have been made after tax and National Insurance has been deducted. This means the member will not have received the right amount of tax relief."

"Additionally where schemes give tax relief through relief at source, in some cases member contributions are being paid from their salary before tax and national insurance have been deducted. Under relief at source, basic rate tax relief on these contributions is then being claimed from HMRC. This results in the member getting too much tax relief."

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    • Sp avatar Ceri Ross

      Ceri is a Business Development Manager at Smart Pension.