Pensions Tax: changes to administration of Relief at Source
Updated 30 January 2018
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Who is likely to be affected
Pension scheme administrators that reclaim tax relief using the Relief at Source (RAS) method to enable their members to obtain tax relief on their contributions to their pension pot.
General description of the measure
The measure amends existing legislation by reducing the time period for the filing of interim and annual claims. It introduces requirements for submitting an annual return of individual information. It also sets requirements for claiming excess relief in an interim claim and introduces an interest charge.
Policy objective
The introduction of Scottish Income Tax creates the potential for the wrong rate of income tax relief being applied to members’ contributions to their pension pot.
Pension scheme administrators must use the rate of income tax as advised by HM Revenue and Customs (HMRC), or use the default rate applicable to the rest of the United Kingdom.
This may result in the wrong rate being applied for many members resident in Scotland. This would introduce administrative burdens for all parties in rectifying the position after the end of the tax year.
The government is committed to ensuring an efficient and fair process for all pension scheme administrators operating RAS.
The changes introduced by these regulations will make sure that the correct rate of income tax will be applied by the pension scheme administrator as HMRC will be able to advise the correct rate of relief earlier in the preceding tax year.
This together with a common due date for filing the annual claim and the annual return of individual information aims to reduce the administrative burden on pension scheme administrators.
The time limit and interest provisions for excess relief will make sure consistency and fairness by encouraging all pension scheme administrators to report and repay without delay.
Background to the measure
The change to the filing date for the annual return of individual information is being introduced following the introduction of Scottish Income Tax. Scottish Income Tax was introduced from 6 April 2016.
HMRC discussed the change of due date with pension industry representatives, who accepted the need to bring the due date forward, and agreed 5 July was acceptable.
Detailed proposal
Operative date
The measure will have effect for the tax year 2017 to 2018 and later tax years. Regulation 3 has effect for interim claims for tax months ending on or after 5 April 2018.
Current law
The current pension tax rules for registered pension schemes came into force on 6 April 2006 and are set out in part 4 of Finance Act (FA) 2004.
The Registered Pension Schemes (Relief at Source) Regulations 2005 (Statutory Instrument 2005/3448) detail the workings of RAS.
Proposed revisions
There are no changes to the primary legislation.
The measure introduces The Registered Pension Schemes (Relief at Source) (Amendment) Regulations 2018, which amends The Registered Pension Schemes (Relief at Source) Regulations 2005 (Statutory Instrument 2005/3448).
The measure introduces requirements for submitting an annual return of individual information.
The measure reduces the period for making an annual claim from 6 months to 3 months following the end of the year of assessment.
The measure reduces the period within which an interim claim may be made from 6 months to 3 months, and introduces requirements for claiming excess relief in an interim claim. The measure also introduces a provision for interest to be charged on any late repayment of excess relief.
Summary of impacts
Exchequer impact (£m)
| 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 |
|---|---|---|---|---|---|
| negligible | negligible | negligible | negligible | negligible | negligible |
This measure is expected to have a negligible impact the Exchequer. The requirement for schemes to report and repay excess relief claims within 30 days of discovery will bring money into the Exchequer sooner than at present, but the amounts involved are relatively small, the exchequer impact is thought to be less than £3 million.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
The measure is not expected to impact on individuals, households and family. This measure will not impact on family formation, stability or breakdown.
Equalities impacts
HMRC has considered the equality implications of this policy and are satisfied this measure will not impact any of the protected characteristics.
Impact on business including civil society organisations
This measure will impact approximately 1,065 pension schemes operating RAS.
It’s not expected that the annual claim and annual returns currently submitted by pension scheme administrators will change, but both reports will need to be submitted to HMRC earlier in the 2017 to 2018 tax year, and later tax years, than at present.
Stakeholders have been included in discussions regarding the change of date. Additionally, HMRC will need scheme administrators to provide details of excess relief claims and to repay the overpayment of tax relief within 30 days, where currently there is no time limit for making these claims.
One-off costs are expected to include familiarisation with the date change and possibly updating processes to meet the new deadline of 5 July for annual claims, and annual returns and the new 30 day deadline for excess relief claims.
It’s not expected that there will be any on-going costs. There is no impact on civil society organisations.
Operational impact (£m) (HMRC or other)
HMRC will use existing information technology and resource for this measure, as the work is already undertaken.
It’s anticipated that implementing this change will incur negligible additional costs for HRMC in respect of the provision to charge interest.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through communication from the pension industry representatives.
Further advice
If you have any questions about this change, please contact Karen Bishop on Telephone: 03000 512336 or email: pensions.policy@hmrc.gsi.gov.uk.
Declaration
Stephen Barclay MP, Economic Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.