Guidance

Pension schemes relief at source for Scottish Income Tax newsletter - February 2018

Published 21 February 2018

1.Scottish Budget 2017 - pension tax relief

On 14 December 2017 the Scottish Government Budget announced new Scottish Income Tax rates and bands for the 2018 to 2019 tax year. These were confirmed on 20 February 2018, and will apply from 6 April 2018.

Her Majesty’s Government and HM Revenue and Customs (HMRC) have been working closely with the Scottish Government and with pension scheme administrators to assess the implications of these changes for pension tax relief and to clarify how the mechanisms for providing that relief will operate in respect of Scottish taxpayers.

For the tax year 2018 to 2019

Net pay

Members of pension schemes who get pension tax relief through the ‘net pay’ mechanism have their pension contributions deducted before Income Tax is applied to their pay, so only pay tax on what’s left. Pension tax relief on these contributions will continue to be given by default at members’ marginal rate of tax, including the new and newly increased Scottish rates.

Relief at source

If you are the administrator of a pension scheme using the relief at source mechanism, you will continue to claim tax relief at the rate of 20% for members who are Scottish taxpayers.

For pension scheme members who are Scottish taxpayers liable to income tax at no more than the Scottish starter rate of 19%, or who pay no tax, current tax rules will continue to apply. This means that scheme administrators will continue to claim relief at 20% in respect of these individuals, and HMRC will not recover the difference between the Scottish starter and Scottish basic rate.

Pension scheme members who are Scottish taxpayers liable to income tax at the Scottish intermediate rate of 21% will be entitled to claim the additional 1% relief due on some or all of their contributions above the 20% tax relief paid to their scheme administrators.

These pension scheme members will be able to claim the additional relief for 2018 to 2019 by contacting HMRC if they don’t already complete Self Assessment returns, or through their return if they do. HMRC will engage with stakeholders to help affected members claim this additional tax relief.

Pension scheme members who are Scottish taxpayers liable to Income Tax at the Scottish higher rate (41%) and Scottish top rate (46%) will be able to claim additional relief on their contributions up to their marginal rate of tax in the usual way, either in their Self Assessment tax return or if they don’t complete a tax return by contacting HMRC.

After 2018 to 2019

We’ll continue to explore the most appropriate way to cater for the new income tax rates and bands announced by the Scottish Government, as well as future changes by the devolved administrations.

To this end, HMRC will continue to engage with stakeholders to help establish an approach for the longer term.

Further guidance for pension scheme administrators

We’ll publish further guidance on other pensions tax implications from the Scottish Budget 2017 in the next pension scheme newsletter.

2. Completing your annual return of individual information for 2017 to 2018

As you know, we based your January 2018 notification of residency status report on the information you submitted on your annual return of individual information for 2016 to 2017.

As we explained in Pension Schemes Newsletter 95 we want to work with scheme administrators over the next few months to improve the format of the data submitted on the 2017 to 2018 annual return of individual information. This will help us to match more of your members when we send you the next notification of residency status report in January 2019.

From April 2018 onwards you’ll need to submit the data on your annual return of individual information in a structured format and you can find more information on what this format is, in Appendix 3 of this newsletter. We’re in the process of updating the registered pension scheme electronic flat text file specifications for the return in line with this and we’ll let you know when we’ve published these.

Some common problems with information submitted on the 2016 to 2017 annual returns of individual information include:

• exceeding the field character length - this means that individual entries are unsuccessful
• entering the member’s name all in one name field - you must split the name of a member between the different name fields on the spreadsheet
• entering the member’s address all in one field name or merging two address lines into one. If the member has UK postcode you must enter this in postcode field - you must split the address of a member between the different address line fields because entering this all in one name field means we may not be able to match that member
• including delimiters such as pipes or / means individual entries are unsuccessful

If you’d like our help with your annual return of individual information for 2017 to 2018 please email: pensions.businessdelivery@hmrc.gsi.gov.uk and put ‘annual return of individual information 2017 to 2018’ in the subject line of your email.

3. Notification of residency status report - January 2018

a. Downloading your report

At the end of January 2018 we made the notification of residency status report available for scheme administrators of relief at source pension schemes to download, through the Secure Data Exchange Service (SDES).

We explained in Pension Schemes Newsletter 95 that the report is only available for you to download for a limited time - 6 days or 144 hours starting from when we made the report available to you to download.

We know that some scheme administrators didn’t download their report in time and that the file is now no longer shown as available to download.

If you didn’t download your report in time, you should tell us as soon as possible by emailing MDTSSETCustomerManagement@hmrc.gsi.gov.uk. You can request that we make the file available to you again for download, but we can only do this once and you must request this by 23 February 2018. If not you’ll have to use the ‘rest of UK’ residency status for your members for 2018 to 2019 or use the look up service when it’s available.

Following your request, when we make the file available to you, the same time limits for downloading it apply. So you’ll have 6 days (144 hours starting from when we made the report available to you) to download your file.

In Pension Schemes Newsletter 95 we also told you that if you set your email notification address, we’d send you an email when your report is available. We’ve had feedback from some scheme administrators that the email notification we sent went to their junk mail folder in their email account. If you have asked us to make your file available for you to download and are waiting for an email notification from us, please check your junk email too.

b. Notification of residency status filename

We’re aware that SDES added a date/time stamp onto the filename of your January 2018 residency report. Whilst the date/time stamp didn’t affect the contents of your file, we’re sorry we didn’t tell you about this sooner.

We are exploring if we can do something about this before your January 2019 report. If not, the technical specification will be updated to reflect this and we’ll update you in a future pension schemes newsletter. We’re sorry for any inconvenience caused.

4. Look up residency status for relief at source

a. Access to check residency status on GOV.UK

As we explained in our Pension schemes Scottish rate of Income Tax newsletter – May 2017, we’ve been working on a service so that you can look up the residency status of your members for relief at source.

During March 2018 we’ll be able to give you controlled access to this look up service before we make it fully available on GOV.UK.

Through this controlled access you’ll be able to:

• check a single member’s residency status
• upload a file to check multiple members

You’ll be able to use the service to look up the residency status of new members joining your schemes from April 2018 and for members without a residency status.

We’d encourage you to contact us for controlled access to the service because you’ll be able to check the correct residency status for your members before it’s fully available on GOV.UK and before the start of the new tax year.

If you’d like us to give you access to the service, please email: pensions.businessdelivery@hmrc.gsi.gov.uk with your name, company name and email address and put ‘Look up residency status for relief at source – private beta’ in the subject line of your email.

b. User research

As part of our work on the service during March 2018, we’d like to understand how many members joined relief at source pension scheme(s) in 2017 to 2018.

If you can give us an estimate of the number of members joining your scheme(s) in 2017 to 2018, please email: pensions.businessdelivery@hmrc.gsi.gov.uk with this information and put ‘Look up residency status for relief at source – user research’ in the subject line of your email.

In addition we’re continuing to carry out user research to help us develop the service and we want to make sure that the service is accessible to all scheme administrators. We’d like talk to scheme administrators that use assistive technologies such as an enlarged text or screen readers or if you need additional support to use our online services.

If you’d like to be involved in this user research please email: pensions.businessdelivery@hmrc.gsi.gov.uk and put ‘Look up residency status for relief at source – user research’ in the subject line of your email.

c. Application Programming Interface (API) – changes to the technical information and controlled access

As we explained in Pension schemes Scottish rate of Income Tax newsletter – May 2017, as well as providing access to the service through GOV.UK, we’re also working on an API so that you can develop your own software to access the information held on the service.

We’ve made changes to our API technical information. Details of these changes are now available within our external testing environment.

If you haven’t already done so, your IT developers can register to use the test environment and you can find more information about how to do this in Pension Schemes Newsletter 90.

We’re also giving developers controlled access to the API from April 2018. This means you’ll be able to look up the residency status of your scheme members using the API.

If you’d like access to the API, please email: pensions.businessdelivery@hmrc.gsi.gov.uk and put ‘Look up residency status for relief at source – access to API’ in the subject line of your email.

5. Updates to GOV.UK guides and the RPSCOM100(Z) spreadsheet

As we explained in Pension Schemes Newsletter 95 we’ve updated our existing GOV.UK content on relief at source for scheme administrators and published a new guide Check a pension scheme member’s residency status for relief at source.

We’ve also updated the HMRC registered pension scheme relief at source spreadsheet to improve the validation and we’ve extended the guidance in the guidance tab and at the top of each column to help you complete the spreadsheet.

6. Relief at source regulations

The regulations The Registered Pension Schemes (Relief at Source)(Amendment) Regulations 2018 have been made and laid.

These regulations

• make the annual return of individual information a statutory return from 6 April 2018 for pension scheme administrators operating relief at source, so HMRC will no longer issue information notices requiring you to submit this information
• introduce a 90 day deadline for scheme administrators to give HMRC information about excess relief claimed and allow us to charge interest after this deadline on the excess amount
• reduce the time period for the filing of interim repayment claims (APSS105)
• retain the 5 October deadline for the filing of annual repayment claims (APSS106)

You can find more information about these regulations in the Pensions Tax: changes to administration of Relief at Source tax information and impact note.

In Pension Schemes Newsletter 91 we published draft APSS105 and APSS106 forms. When we publish final versions of these forms, in April 2018, we’ll update these along with our guidance to reflect The Registered Pension Schemes (Relief at Source)(Amendment) Regulations 2018.

We’ll also provide further guidance on telling us about excess relief you’ve claimed in the next pension schemes newsletter due to be published at the end of the month.

7. Appendix 1 - messages for your members

1. What’s changing

On 14 December 2017 the Scottish Government announced new Scottish Income Tax rates and allowances to apply for 2018 to 2019 tax year.

For 2018 to 2019 the Scottish Government has announced the following rates for people who live in Scotland:

• starter rate
• basic rate
• intermediate rate
• higher rate
• top rate

These rates and allowances are different to the rates and allowances for the rest of the UK.

The 2018 to 2019 tax year

Income Tax rate	Proposed Scottish rate	Rest of UK rate
Starter rate	19% (if you earn between £11,850 and £13,850)	N/A
Basic rate	20% (if you earn between £13,851 and £24,000)	20% (if you earn between £11,851 and £46,350)
Intermediate rate	21% (if you earn between £24,001 and £43,430)	N/A
Higher rate	41% (if you earn between £43,431 and £150,000)	40% (if you earn between £46,351 and £150,000
Top rate	46% (if you earn over £150,000)	45% (if you earn over £150,000)

The tax bands shown assume that you’re in receipt of the full personal allowance, (which is reduced by £1 for every £2 of income over £100,000).

The Scottish Parliament agreed these rates and thresholds on 20 February 2018, and they are due to apply from 6 April 2018.

2. Pension tax relief

The amount of the pension tax relief you get depends on how much you contribute to your pension scheme and on the rate of Income Tax that you pay.

If you’re a Scottish taxpayer who gets tax relief on your pension savings, this guidance explains what the changes to the rates and allowances mean for you.

3. How you get pension tax relief

If you’re a member of a registered pension scheme, you can get tax relief on pension contributions of up to 100% of your annual earnings.

You get the tax relief automatically if your:

• employer takes your pension contributions out of your pay before deducting Income Tax - this is called the ‘net pay’ arrangement
• pension provider claims tax relief for you at the basic rate of 20% and adds it to your pension pot - this is called ‘relief at source’

You get relief at source in all personal and stakeholder pensions, and some workplace pensions. If you pay tax at a rate higher than 20% you are entitled to claim your additional relief by contacting HMRC if you don’t already complete a Self Assessment return, or through your return if you do. You can do this whether you live in Scotland or elsewhere in the UK.

4. If you get pension tax relief through the net pay arrangement

Because your employer takes your pension contribution from your pay before it’s taxed, you only pay Income Tax on what’s left.

So you don’t pay Income Tax on the pension contributions you make.

This means you should automatically get the right amount of tax relief on your pension savings irrespective of the band or rate of tax you pay, or whether you live in Scotland or elsewhere in the UK.

You don’t need to take any action or reclaim tax relief from HMRC.

5. If you get pension tax relief through relief at source

Your pension scheme administrator adds tax relief to your pension pot at the basic rate if:

• you pay your pension contribution after you’ve paid Income Tax and National Insurance
• your employer takes your pension contributions after taking tax and National Insurance from your pay and pays these contributions to your scheme

As the tax rates and allowances that the Scottish Government has announced are different if you live in Scotland from those that apply for the rest of the UK, you may be entitled to a different rate of tax relief on your pension contributions (you can read more on this in section 6).

6. Relief at source - how you’ll get the right amount of pension tax relief for 2018 to 2019

Basic rate (for both Scottish taxpayers and taxpayers elsewhere in the UK)

Your pension scheme administrator will continue to give you tax relief at the basic rate of 20%.

They’ll do this for all scheme members so it doesn’t matter where you live, you’ll get 20% tax relief directly into your pension scheme.

Scottish starter rate

If you live in Scotland and you pay the Scottish starter rate of Income Tax at 19%, your scheme administrator will still give you tax relief at 20% into your pension scheme and we won’t ask you to repay the difference. So you don’t need to take any action or pay anything back to HMRC relating to pension tax relief.

Scottish intermediate rate

If you live in Scotland and you pay the Scottish intermediate rate of Income Tax at 21%, your scheme administrator will automatically give you tax relief at 20%.

As you’re entitled to an additional 1% of tax relief on your pension contributions, you’ll be able to claim this from HMRC. We won’t be able to put this into your scheme but we’ll adjust your tax code so that you get this tax relief through your pay. You can claim this by contacting HMRC if you don’t already complete Self Assessment returns, or through your Self Assessment tax return if you do.

Higher or top rate (for both Scottish taxpayers and taxpayers elsewhere in the UK)

If you pay higher or top rate of Income Tax, you can continue to claim this additional tax relief from HMRC as you do now in your Self Assessment tax return or by contacting HMRC. You can do this whether you live in Scotland or elsewhere in the UK.

8. Appendix 2 - messages for payroll providers

1. What’s changing

On 14 December 2017 the Scottish Government announced new Scottish Income Tax rates and allowances to apply for 2018 to 2019 tax year.

For 2018 to 2019 the Scottish Government has announced the following rates for people who live in Scotland:

• starter rate
• basic rate
• intermediate rate
• higher rate
• top rate

These rates and allowances are different to the rates and allowances for the rest of the UK.

The 2018 to 2019 tax year

Income Tax rate	Proposed Scottish rate	Rest of UK rate
Starter rate	19% (if you earn between £11,850 and £13,850)	N/A
Basic rate	20% (if you earn between £13,851 and £24,000)	20% (if you earn between £11,851 and £46,350)
Intermediate rate	21% (if you earn between £24,001 and £43,430)	N/A
Higher rate	41% (if you earn between £43,431 and £150,000)	40% (if you earn between £46,351 and £150,000
Top rate	46% (if you earn over £150,000)	45% (if you earn over £150,000)

The bands shown assume that a taxpayer is in receipt of the full personal allowance, (which is reduced by £1 for every £2 of income over £100,000).

The Scottish Parliament agreed these rates and thresholds on 20 February 2018, and they are due to apply from 6 April 2018.

2. Pensions tax relief

The amount of pension tax relief that a member gets depends on how much they contribute to their pension scheme and on the rate of Income Tax that that they pay.

This guidance explains what the changes to the rates and allowances mean for you as a pension payroll provider.

3. Payroll for net pay arrangement

If you’re responsible for an employer’s payroll where contributions to a registered pension scheme are made under the net pay arrangement, you shouldn’t need to change the way you calculate the contribution that you deduct on behalf of an employee who is a Scottish taxpayer.

You deduct the employee’s pension contribution from their pay before it’s taxed and the member only pays Income Tax on what’s left.

This means they will automatically get the right amount of tax relief on their pension savings irrespective of the band or rate of tax they pay, or whether they live in Scotland or elsewhere in the UK.

4. Payroll for relief at source

For 2018 to 2019 tax year the government has confirmed that scheme administrators will continue to claim relief at source at 20% for both Scottish taxpayers and taxpayers in the rest of the UK. So although the Income Tax rates and thresholds that the Scottish Government announced are different for employees who live in Scotland, the way you deduct and pay across pension contributions for relief at source members won’t change.

For occupational pension schemes that operate relief at source, this means that you’ll still deduct pension contributions for an employee after you’ve deducted Income Tax and National Insurance from their pay. Because members in relief at source schemes are entitled to have their gross contributions reduced by the basic rate of Income Tax, you’ll continue to use this same rate when calculating the amount to be deducted and paid to the registered pension scheme in 2018 to 2019, even if the employee is a Scottish starter rate taxpayer (19%), or a Scottish intermediate rate taxpayer (21%).

5. After 2018 to 2019

HMRC will continue to explore with you the most appropriate way to cater for the new Income Tax rates and bands announced by the Scottish Government, as well as future changes by the devolved administrations.

9. Appendix 3 - structured data for the annual return of individual information for 2017 to 2018

To help us successfully process your 2017 to 2018 annual return of individual information please follow the guidance in this appendix.

Mandatory fields - must be completed.

Conditional fields - must be completed where the conditions stated are met.

Column 1

Pension Scheme administrator reference.

Mandatory field - 8 characters (the format must be PNNNN/NN - N stands for numeric field).

Column 2

Pension Scheme administrator name

Mandatory field - up to 50 characters (This is the name of the scheme. If the return relates to more than one scheme, insert the name of the scheme administrator).

Column 3

Tax Year

Mandatory field - 4 numerical characters (This is the year in which the period of the return ends (for example the year ending 5 April 2018 will be 2018)).

Column 4

Pension Scheme Tax Reference (PSTR)

Mandatory field - up to 10 characters (the format must be 8 numeric digits followed by ‘R’ and another alpha character).

Column 5

Member’s title

Mandatory field - up to 10 alpha characters.

Column 6

Member’s forename(s)

Mandatory field - up to 50 alpha characters.

Column 7

Member’s surname

Mandatory field - up to 50 alpha characters.

Column 8

Member’s National Insurance number (NINO)

Conditional field - 9 characters (format must be AANNNNNNA do not use temporary NINOs that begin with ‘TN’).

Column 9

Member’s address line 1

Mandatory field - up to 40 alpha/numeric characters.

Column 10

Member’s address line 2

Mandatory field - up to 40 alpha/numeric characters.

Column 11

Member’s address line 3

Conditional field - up to 40 alpha/numeric characters.

Column 12

Member’s address line 4

Conditional field - up to 40 alpha/numeric characters.

Column 13

Member’s address line 5

Conditional field - up to 40 alpha/numeric characters.

Column 14

Member’s postcode

Conditional field - up to 8 alpha/numeric characters (UK postcodes must be completed in this field, separate from the address fields).

Column 15

Member’s date of birth

Mandatory field - 8 numerical characters (the format must be DDMMYYYY the data supplied must not contain spaces or dividers).

Column 16

Member’s gender

Mandatory field - 1 alpha character.

Column 17

Member’s status

Mandatory field - 1 numerical character (employment status, enter a value 1-9 as below).

1. Employed - a person chargeable to tax under chapter 2 of part 2 of ITEPA 2003 for the year of assessment concerned in respect of employment income as defined in section 7 of that act from an office or employment held by that person.

2. A person chargeable to tax under part 9 of ITEPA 2003 for the year of assessment concerned in respect of a pension.

3. Self Employed - a person chargeable to tax under chapter 2 part 2 of ITTOIA 2005 for the year of assessment concerned in respect of annual profits or gains arising or accruing from any trade, profession or vocation carried on by that person.

4. A child under the age of 16 years.

5. Caring for one or more children under the age of 16 years.

6. Caring for a person aged 16 years or over.

7. In full time education.

8. Unemployed.

9. Other status.

Column 18

Individual Contribution

Conditional field - up to 6 numerical characters, round up to the nearest pound.

Column 19

Employer contribution

Conditional field - up to 6 numerical characters, round up to the nearest pound.

Column 20

Term assurance contribution

Conditional field - up to 6 numerical characters, round up to the nearest pound.

Column 21

Total amount of transfer payments received

Conditional field - up to 8 numerical characters, round up to the nearest pound.

Column 22

Total amount of National Insurance rebates

Conditional field - up to 6 numerical characters, round up to the nearest pound.

Column 23

Value of member’s fund

Mandatory field - up to 8 numerical characters, round up to the nearest pound.

Column 24

Date of fund valuation

Mandatory field - 8 numerical characters (the format must be DDMMYYYY and the data supplied must not contain spaces or dividers). Insert a date of fund valuation which must be within a 12 month period commencing 6 July of the reported tax year.