Guidance

Pension schemes newsletter 118 – March 2020

Published 26 March 2020

1. Spring Budget 2020

At the Spring Budget on 11 March 2020, the government announced several measures in connection with pensions.

A. Tapered annual allowance

The government announced an increase in the income limits used in calculating the tapered annual allowance and a decrease in the minimum tapered annual allowance.

From 6 April 2020:

• the threshold income, which is broadly net income before tax (excluding pension contributions), will be increased from £110,000 to £200,000
• the adjusted income, which is broadly net income plus pension accrual, will be increased from £150,000 to £240,000
• the minimum tapered annual allowance will be decreased from £10,000 to £4,000

This is in response to a 2019 government review of the tapered annual allowance.

In Appendix 1 of this newsletter, we have included information for your members about these changes.

B. Lifetime allowance

At Budget the government confirmed that following uprating in line with the consumer price index, the amount of the pension lifetime allowance for tax year 2020 to 2021 is £1,073,100.

C. Net pay/relief at source

A call for evidence will be published in the spring on how to address the different outcomes for lower earners, depending on whether their employer’s pension scheme uses the net pay or relief at source method of tax relief on their pension contributions.

D. Collective money purchase pension schemes

Legislation will be introduced so that the new collective money purchase pension schemes can operate as registered pension schemes. Collective money purchase pension schemes, introduced by the Pension Schemes Bill 2019-20, are also known as collective defined contribution pension schemes or CDCs.

2. Temporary changes to pension processes as a result of coronavirus (COVID-19)

We know that the developing situation with the coronavirus (COVID-19) is posing problems for pension scheme administrators. We hope that the following temporary changes to pension processes will help.

For now, these changes apply for the next 3 months. We’ll review the position at the end of 3 months and provide an update in the June 2020 newsletter.

A. Rent and loan payment holidays

As a result of coronavirus (COVID-19), we know that scheme administrators may be looking to provide increased numbers of payment holidays on loans due from connected parties and rents on commercial properties held in registered pension schemes.

Usually, to make sure that a payment holiday is on a commercial basis (and does not result in an unauthorised payments charge), HMRC would expect the scheme administrator to obtain an independent valuation.

To help scheme administrators and businesses affected by the current situation, HMRC are content that any arm’s length commercial decisions relating to registered pension schemes, including rent holidays, will not give rise to an unauthorised payment charge and can be agreed without independent valuations taking place.

B. APSS105 relief at source repayment claims

We understand that it may be difficult for scheme administrators to obtain wet signatures on interim repayment claims from authorised signatories and send these to HMRC. For now, HMRC will accept scanned interim repayments claims:

• emailed by the authorised signatory – in this circumstance we will accept the claim without a signature
• signed and emailed by someone else providing we also receive a separate email directly from the authorised signatory authorising them to submit the claim

You should email these to pensionschemes.reliefatsource@hmrc.gov.uk and put ‘APSS105 – relief at source interim repayment claim’ in the subject line of your email. Please also refer to these provisions in Pension Schemes Newsletter 118 in the body of your email.

We would encourage you to submit your APSS105s as soon as you can, however we know that with alternative ways of working in the current situation, submitting your interim repayment claim by the last working day of the month may not be possible. So, on a temporary basis we’ll accept submissions by 8th of the next month.

So for example for claims period 5 February 2020 to 6 March 2020, we’ll now accept APSS105s up to and including 8 April 2020 (instead of 31 March 2020).

If we receive your claim by the last working day of the month and we are satisfied with the claim, we’ll normally repay you on the 21st of the following month or the next working day.

We cannot guarantee payment for any interim repayment claim received after the 8th day of the next month.

C. R63N - repayment request for registered pension schemes

As with the APSS105 we know that scheme administrators may not be able to obtain wet signatures so we’ll also accept scanned R63N repayment requests:

• emailed by the authorised signatory – in this circumstance we will accept the claim without a signature
• signed and emailed by someone else providing we also receive a separate email directly from the authorised signatory authorising them to submit the claim

You should email these to pensionschemes.reliefatsource@hmrc.gov.uk and put ‘R63N – repayment request’ in the subject line of your email. Please also refer to these provisions in Pension Schemes Newsletter 118 in the body of your email.

D. Relief at source – excess relief

We understand if scheme administrators cannot submit relief at source excess relief schedules in these circumstances. If this is the case, you should continue to report this on your APSS105 and repay the excess amount. For the next 3 months, you should also collect and keep copies of the information required by the pension tax rules. HMRC will not retrospectively charge interest if you could not submit this.

E. Accounting for Tax return submission and payment delays

As you know, if you submit your AFT return or make tax charge payments after the due date you face penalties and interest for late payment. The next AFT return for the quarter 1 January 2020 to 31 March 2020 is due to filed and paid by 15 May 2020. However we know that pension companies and scheme administrators may face challenges submitting AFT returns and making payments by the deadline if resources are affected by the coronavirus (COVID-19).

If this is the case and you receive penalties or interest on the return for the quarter ended 31 March, you can email details to us at pensions.businessdelivery@hmrc.gov.uk and put ‘AFT return – Newsletter 118’ in the subject line of your email. We’ll cancel any penalties and interest in these circumstances.

F. APSS262 – reporting transfers to a qualifying recognised overseas pension scheme (QROPS)

If you’re the scheme administrator of a registered pension scheme, you must tell us that your scheme has transferred sums or assets held within your registered scheme to a QROPS, within 60 days of the day of the transfer. If you do not report the transfer to HMRC by this deadline you may be liable to penalties.

We know that you may face challenges submitting APSS262s by this deadline if resources are affected by coronavirus (COVID-19). So if you receive a penalty relating to late reporting of an overseas transfer, you can email details to us at pensions.businessdelivery@hmrc.gov.uk and put ‘APSS262 – Newsletter 118’ in the subject line of your email. We’ll cancel any penalties in these circumstances.

G. Further updates on temporary changes to the pensions processes

We’re continuing work to consider how we can help pension scheme administrators during this time and will be publishing additional guidance very shortly in a bespoke newsletter.

3. Annual allowance calculator

As part of our annual updates we will update the annual allowance calculator to reflect the changes to threshold income, adjusted income and the minimum tapered annual allowance. We’ll confirm when we have done this in a future newsletter, but in the meantime we recommend that pension scheme members do not use the calculator for 2020 to 2021.

4. Relief at source

A. Relief at source for 2020 to 2021

At Spring Budget 2020 the government confirmed that the Income Tax rates for 2020 to 2021 for England and Northern Ireland will continue to be the same as for 2019 to 2020.

For 2020 to 2021 the Income Tax rates for England and Northern Ireland are as follows:

• the basic rate will be 20%
• the higher rate will be 40%
• the additional rate will be 45%

In pension schemes newsletter 117 we provided the Scottish and Welsh Income Tax rates for 2020 to 2021. As there are no changes to the rates for England and Northern Ireland, Scotland and Wales for 2020 to 2021, you should continue to operate relief at source as you do now.

B. Annual return of information for the tax year 2019 to 2020

In pension schemes newsletter 117 we explained the importance of using the versions of the spreadsheet and electronic flat text file specifications that are on GOV.UK rather than using a version that you have previously saved.

From 6 April 2020 we’ll be updating our GOV.UK content so that there is only one version of the spreadsheet and the electronic flat text file specifications.

You can find more information about submitting your annual return of information and the APSS590 declaration in our guide Sending a relief at source annual information return.

5. Managing Pension Schemes service

As we explained in the Managing Pension Schemes service newsletter – January 2020, we’ll introduce the Accounting for Tax (AFT) return onto the service from 1 April 2020 for schemes registered using the service. To accompany this we’ll publish a Managing Pension Schemes service newsletter with more information about compiling and submitting the AFT.

6. GOV.UK updates

In the next few weeks we’ll be updating a number of our GOV.UK guides to reflect budget announcements, the introduction of the AFT return on the Managing Pension Schemes service as well as other small changes to some of our guides

7. Pension scheme administration - moving pension recipients from one payroll to another

In pension schemes newsletter 114 we explained that we planned to update the ‘less common circumstances’ section of our GOV.UK guide paying a company pension or annuity through your payroll. This guide has now been updated.

8. Pension Schemes Online service

In pension schemes newsletter 116, we told you about the problems that some scheme administrators were having when trying to access or use the Pension Schemes Online service. We have implemented a fix for this issue so you should now be able to access the service.

If you receive any other error messages and are concerned about pension scheme reporting, you should email pensions.businessdelivery@hmrc.gov.uk and put ‘Pension scheme reporting’ in the subject line of your email.

Appendix 1 - annual allowance changes, messages for your members

What’s changing?

At Budget 2020, the government announced increases to the threshold income and adjusted income limits that you use to work out your tapered annual allowance.

From 6 April 2020 and subsequent years, the adjusted income limit will rise to £240,000 (increased from £150,000) and the threshold income limit will rise to £200,000 (increased from £110,000).

The Chancellor also reduced the minimum reduced annual allowance that you can have under the tapering rules from £10,000 to £4,000.

What is the annual allowance?

The annual allowance is the most you can save in your pension schemes each year with the benefit of tax relief.

For 2020 to 2021 the annual allowance is £40,000 but if you have a high income, your pensions annual allowance may be lower than £40,000.

This tapering of the annual allowance is applied depending on your income within the tax year and applies to all pension savings that you make or that are made on your behalf.

Will the tapered annual allowance apply to me?

To see if the taper applies to you, you’ll need to work out your:

• net income in that tax year
• pension savings in that tax year
• threshold income in that tax year
• adjusted income in that tax year

From 6 April 2020, you’ll have a reduced (‘tapered’) annual allowance if both your:

• threshold income is over £200,000 (this was previously £110,000)
• adjusted income is over £240,000 (this was previously £150,000)

You will not be subject to the tapered annual allowance if your threshold income for that year is £200,000 or less, no matter what your adjusted income is.

What effect does the tapered annual allowance have on my savings?

If you’re subject to the tapered annual allowance, for every £2 your adjusted income goes over £240,000, your annual allowance for that year reduces by £1.

From 6 April 2020 the minimum that this can reduce to is a tapered annual allowance of £4,000.

Example 1

For 2020 to 2021 an individual with an adjusted income of £300,000 will exceed the adjusted income limit by £60,000. The individual’s annual allowance would be reduced by half of this, so by £30,000. leaving them with a tapered annual allowance of £10,000 (the standard annual allowance of £40,000 less the £30,000 reduction under the tapering rules).

Example 2

For 2020 to 2021 another individual earns £330,000. Their income exceeds the adjusted income limit by £90,000. Their annual allowance should be reduced by £45,000 (the standard annual allowance of £40,000 less the £45,000 reduction under the tapering rules).

However the minimum that the annual allowance can reduce to under the tapered annual allowance rules is £4,000. So, this individual will have a tapered annual allowance of £4,000.

Do not forget though, that you can also carry forward any unused annual allowance from the previous 3 tax years and use this. Your available annual allowance is your reduced (or tapered) annual allowance plus any unused allowance from the previous 3 tax years.

What should I do if I have made pension savings over my available annual allowance

If your pension savings made in the tax year are more than your available annual allowance, you should include the excess amount on your Self Assessment return.

This amount is added to your taxable income and you will pay Income Tax on it, at the tax rate that applies to you.