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HMRC internal manual

Pensions Tax Manual

Contributions: tax relief for members: methods: relief at source

Glossary PTM000001
   

Introduction
The relevant rate of tax
Special conditions for relief at source on contributions to pension schemes
Claiming relief at source on contributions to a pension scheme
Total contributions
Payment that is received later than contribution date
Declaration about accuracy of information
Next stage
Higher rate and Scottish intermediate rate taxpayers
Relief at source (RAS): schemes that can use RAS
Relief at source: making a contribution
Relief at source: claims by scheme administrators
Excess interim relief claims and interest on them
Annual return of information 

 

Introduction

Sections 192 (2) and (3) Finance Act 2004

Regulations 5 and 9 The Registered Pension Schemes (Relief at Source) Regulations 2005 - SI 2005/3448

Where member contributions are received for Relief at Source (RAS), any sum (portion of the relevant rate of tax) deducted and retained under the legislation by the payer, is to be treated as income tax paid by the scheme administrator. The scheme administrator is then entitled to recover from HMRC this amount of tax relief and add it to the member’s pension fund. It does not matter that the contributor never paid the tax they deducted to HMRC - the legislation expects this.

Before a contribution can be handled under RAS, the scheme administrator must receive certain information and declarations from the scheme member. What information and declarations are required is explained below.

In practice most scheme administrators of schemes using RAS provide members with an application form and other supporting documentation to join their pension scheme. Scheme administrators will need to ensure that their member application process collects the relevant information and declarations. No tax relief can be claimed by scheme administrators if the required information and declarations have not been provided by the member (or in some cases by their employer).

The income tax recovery has to be made by a claim to HMRC for all the members entitled to such treatment within the scheme. This is an annual claim and has to be made for each tax year. However the scheme administrator has the option to make interim claims, usually for each tax month.

The relevant rate of tax

Sections 192, 192A and 192B Finance Act 2004

Regulation 2 The Registered Pension Schemes (Relief at Source) Regulations 2005 - SI 2005/3448

From 6 April 2016 the legislation dealing with RAS was amended as a result of the introduction of the Scottish Rate of Income Tax.  The changes mean that RAS will be given at the ‘relevant rate’ of tax, which may be different depending on whether or not the member is a Scottish taxpayer (see the Scottish Taxpayer Technical Guidance at STTG2000 for a definition of the term ‘Scottish taxpayer’).

For members who are Scottish taxpayers the relevant rate is the Scottish basic rate.

For members who are not Scottish taxpayers, the relevant rate is the basic rate.

Scheme administrators should therefore claim RAS at the Scottish basic rate if the member is a Scottish taxpayer, or the basic rate if the member is not a Scottish taxpayer. 

For contributions by members who are Scottish taxpayers liable to income tax at no more than the Scottish starter rate, or who pay no tax and contribute within the ‘basic amount’ in PTM044100, scheme administrators should continue to claim RAS at the Scottish basic rate.  HMRC will not recover the difference between the Scottish starter and Scottish basic rate.

Special conditions for relief at source on contributions to pension schemes

To be able to make contributions using the relief at source system individuals will need to comply with a number of regulations. These will allow HMRC to give the correct level of relief on contributions so that what is due is received but also ensure that HMRC requirements for receiving that relief are complied with. There are some special conditions and exceptions for the following categories of individuals:

Children under the age of 16

The obligations can be discharged by a parent, guardian, or a person with parental responsibility.

Incapability, by reason of mental disorder, of managing and administering property and affairs

The obligations can be discharged:

  • in England and Wales or Northern Ireland, by the person’s attorney, receiver or deputy, or the person managing and administering his property and affairs; and
  • in Scotland, by the person’s guardian within the meaning of the Adults with Incapacity (Scotland) Act 2000.

A physical impairment, which causes difficulty executing documents in respect of the management and administration of property and affairs

The obligations may be discharged by a person having a power of attorney in relation to an individual’s affairs.

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Claiming relief at source on contributions to a pension scheme

Regulation 4(2) The Registered Pension Schemes (Relief at Source) Regulations 2005 - SI 2005/3448

When an individual joins the pension scheme, and before they make their first contribution under Relief at Source, the scheme administrator will need some basic personal information such as:

  • full name,
  • permanent residential address (including post code if resident in the UK),
  • date of birth,
  • National Insurance Number (“NINO”) (or a statement that a number is not held, unless the individual is under the age of 16 or a citizen of a country outside the United Kingdom who is not resident in the United Kingdom).

 

Regulation 4 does not require a member without a NINO to provide a reason why they do not have one, but reason for the lack of a NINO must be given where a scheme administrator provides a schedule of excess relief claimed on an interim claim for a tax month on or after 5 April 2018 (see Excess interim claims and interest on them, below).  The reason why the NINO is missing is also a required data item on the annual return of information (see Annual return of information, below).  It is therefore good practice for the scheme administrator to obtain and record the reason for any member not having a NINO at the time the member (or their employer) provides the original information and declarations.

Status

Regulation 4(3) The Registered Pension Schemes (Relief at Source) Regulations 2005 - SI 2005/3448

State which category of status best describes personal circumstances. These are:

  • employed, if chargeable to tax under Chapter 2 of Part 2 of Income Tax (Earnings and Pensions) Act 2003 for the year of assessment concerned in respect of employment income as defined in section 7 of that Act,
  • a pensioner, where chargeable to tax under Part 9 of that Act for the year of assessment concerned in respect of a pension,
  • classed as self-employed, that is an individual chargeable to tax under Chapter 2 of Part 2 of Income Tax (Trading and Other Income) Act 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 the individual,
  • a child under the age of 16.

Others

Regulation 4(4) The Registered Pension Schemes (Relief at Source) Regulations 2005 - SI 2005/3448

If an individual is unable to meet any of the above categories they can state that they are:

  • caring for one or more children aged under 16,
  • caring for a person aged 16 or over,
  • in full time education, or
  • unemployed.

If none of these categories fit the circumstances, ‘other’ should be put down as applying.

The ‘total contribution’ declaration will also need to be made (see below). Some scheme administrators will require a standard form to be filled out whilst others will send a form based on information they already know asking to signify that the information is correct. If the copy declaration is to be posted, the scheme administrator should be notified if it is not received within a given time period.

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Total contributions

Regulation 5 The Registered Pension Schemes (Relief at Source) Regulations 2005 - SI 2005/3448

Meaning of total contributions

‘Total’ contributions refers to the total gross contributions made each tax year to all of the registered pension schemes of which the individual is a member. So in the case of contributions to a relief at source scheme, it means the full contributions into the scheme; that is, the contributions paid in (net of the relevant rate of tax) plus the amount of tax deducted at the basic rate or Scottish basic rate and retained on making the payment (equal to the amount of relief to be claimed by the scheme). ‘Total contributions’ here takes no account of any higher rate or additional relief for higher / additional rate taxpayers.

Example

A member wants to make a total contribution of £1,000. The member deducts and retains £200 and pays over £800 to the pension scheme. The pension scheme claims £200 from HM Revenue & Customs. The total contribution is £1,000. The member is a higher rate taxpayer (40%) and claims the extra £200 (40% - 20% already claimed by pension scheme) from HMRC through self-assessment after the end of the year. The total contribution is still £1,000.

Before paying a net contribution for the first time, members have to give to the scheme administrator a declaration that “the ‘total’ contributions to any registered pension scheme in respect of which I am entitled to receive tax relief, will not exceed the higher of the basic amount or my relevant UK earnings.”

By doing this they declare that they will not make a relief at source contribution that is above their tax relief limit of the higher of:

  • 100% of their relevant UK earnings, or
  • the basic amount of £3,600.

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Payment that is received later than contribution date

This is typically an issue where the relief at source method of claiming tax relief is used. Each individual case may require a review to establish exactly why the payment was not received on the date expected, including who expected it and why. The circumstances of the delay are particularly important where the payments are made near to the beginning or end of the tax year or a pension input period (see PTM052000) and decisions about whether a payment should be accepted as paid in the earlier tax period have to take into consideration whether the processing of reliefs that would follow is still practical.

The tax rules do not require schemes to accept contributions (though there may be other statutory requirements), or to accept them at a particular time or in a particular amount. Apart from statutory requirements, schemes are free to set their own terms. The guidance that follows concerns situations where the scheme is ready to receive the contribution as paid at the particular time. HMRC cannot require a scheme to take a member contribution at a particular time. Also HMRC does not have to meet claims under the relief at source system where the claims are not made correctly.

Direct debits

If the contribution was late due to the failure of the direct debit system to make the payment as opposed to a lack of funds or delay due to the member’s actions that caused the payment to be late, one can accept the contribution was paid on the original date. This is provided the scheme held a fully completed direct debit mandate under which payment was due on that original date.

Lack of funds/cheques

However, if the payment was late because a cheque was not honoured then a valid contribution will be deemed to have been made on the date the cheque was re-presented (so long as it is subsequently cleared). Similarly if a direct debit is not paid because there are insufficient funds in the payee’s account then a valid contribution will be made on the date when the scheme actually receives the funds after reprocessing the direct debit.

Standing orders

Individual payments under a direct debit are initiated by the receiving pension scheme, and so a payment may be due by a given date. However, the situation with a standing order presents other possibilities. Standing orders are initiated by the payer, so it may be that the amount and timing for payment in the order has been agreed with the scheme and is expected. In that case, if the failure is down to a banking system failure one may accept it as paid on the original date much like the first direct debit example above. But if the timing of a standing order is purely at the instigation of the payer without the scheme’s involvement, the payment might not actually be due on a given date, even though the member would like it to have been paid then. If a payment wasn’t due under the scheme on a given date, and wasn’t factually paid on that date either, then the argument it ought to be accepted on that earlier date depends on the scheme’s readiness on that earlier date to have taken the payment as well as whether there was a banking system failure against either bank’s standards for such payments.

Faster payments

Payments made by the ‘Faster Payments’ scheme are often made via online banking and complete near-instantly. However the Faster Payments Scheme under which they are made envisages that there can be occasions where payments take longer to complete. It seems the scheme requires that “From the beginning of 2012 all payments must reach the recipients account by the next working day after the customer has initiated the transaction” (source (web) at time of writing). The scheme also provides a number of responses to notify if there are delays or problems like a lack of funds or inability to take payment. The assessment of the proper performance of these aspects and reasonable expectation of users will also be subject to the terms of individual banks involved. In other words, there should be no blanket expectation that all ‘faster payments’ are instant and that anything other than instant payment (or even payment within the often stated two hours) is always due to a system failure. At the same time, where bank agreements and systems are in place to provide a shorter time to completion, they can be relevant to identifying a system failure. If a system failure is found, one may accept the later completion of payment as a contribution paid within the original Faster Payments deadline, where this is consistent with the policy on taking contributions at that time.

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Declaration about accuracy of information

Regulation 6 The Registered Pension Schemes (Relief at Source) Regulations 2005 - SI 2005/3448

The individual or their representative must make in writing and sign a declaration to:

  1. confirm the accuracy and completeness of the basic personal information given to the scheme administrator as set out above at Claiming relief at source on contributions to a pension scheme.
  2. confirm that the contributions made using the relief at source system will be within the total contributions limit (see Total contributions above).
  3. confirm that they will tell the scheme administrator if an event occurs, for example they cease to have any relevant UK earnings, and as a result are no longer entitled to tax relief for an earlier contribution. This must be done by the later of:
* 5 April in the year of assessment in which the event occurs; and
* 30 days after the event occurred.

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Next stage {#}

Once the scheme administrator is satisfied with the information given to them and the required declaration has been signed, they will allow contributions to the pension scheme at the net amount of contributions after income tax has been deducted at the relevant rate.

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Higher rate and Scottish intermediate rate taxpayers

How a higher rate or Scottish intermediate rate taxpayer using the relief at source method can claim the balance of tax relief due

This can be done by completing the relevant section of the Self Assessment tax return and sending it to their tax office.  A separate claim for relief at a rate of tax higher than the basic rate or Scottish basic rate can also be made to the tax office telephone or by sending them a letter.

Example

A higher rate taxpayer wants £100 to go into their registered pension scheme.

They have paid net contributions of £80 into the pension scheme. Assuming that higher rate tax is charged at 40%, the tax relief they would be due would be £40. But they have already received tax relief at source of £20 (because they paid £80 rather than £100 to the scheme). So the extra tax relief due to them will be £20 (40% less 20%) which will be given by their tax office.

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Relief at source (RAS): schemes that can use RAS {#}

Section 191(2) Finance Act 2004

A registered pension scheme must operate relief at source (RAS) unless the tax rules specifically provide that it can operate net pay arrangements or it can accept contributions gross from pension scheme members - (see PTM044230).

Individuals that can use RAS

Any member making a contribution to a registered pension scheme that operates RAS must make that contribution net of the relevant rate of tax. A third party (other than the employer) who makes a contribution for a member of that scheme may also make that contribution net of the relevant rate of tax. However only a member may claim higher rate tax relief on that third party contribution. In other words, the contribution is attributed to the individual who is the member of the scheme.

Points to note on RAS

Sections 191(7), 192(5) and Paragraph 40 Schedule 36 Finance Act 2004

If a member has relevant UK earnings of less than the basic amount of £3,600 but is making a contribution of more than the level of their earnings RAS is the only method by which the member can get tax relief on the excess contribution (up to £3,600).

Relief for contributions made to retirement annuity contracts is not required to be given under the relief at source (RAS) system; it can be given by making a claim. The decision rests with the RAC provider.

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Relief at source: making a contribution {#}

An individual will make their contribution after deducting a sum equal to the relevant rate of income tax on the contribution.

The scheme administrator will then reclaim (GOV.UK) the equivalent payment from HMRC and have this credited to the member’s registered pension scheme.

Any member can make relievable pension contributions to a registered pension scheme using the relief at source method, that is net of the relevant rate of tax, except where:

  • the member is an employee and the scheme has chosen to operate the net pay arrangement for all its employee members
  • the member is a member of a public service pension scheme or marine pilots benefit fund and the scheme does not operate net pay on the contributions and does not choose to operate relief at source, or
  • the provider of a retirement annuity contract does not wish to operate relief at source in relation to the contract.

A member entitled to higher rate tax relief may claim higher rate tax relief from HMRC, on their Self Assessment return.

Example: Basic rate taxpayer: Relief at Source

Margot who wishes to pay £100 per month to her registered pension scheme would only pay a net amount of £80 a month, where the basic rate of tax is 20%.

Example: Higher rate taxpayer: Relief at Source

Margot may claim additional relief of £20, if the higher tax liability is 40%, through her Self Assessment tax return.

Where relief is given through the use of the relief at source method, relief may not also be given by using the net pay arrangement.

Relief at source: claims by scheme administrators

Annual claims

Regulations 11 and 12 The Registered Pension Schemes (Relief at Source) Regulations 2005 - SI 2005/3448

Scheme administrators making an annual claim must use form APSS 106. This form is available at: Pension schemes: registered pension schemes relief at source annual claims (APSS 106) (GOV.UK).

For claims from 2013-2014 onwards, it is no longer a mandatory requirement for the claim to be certified by the scheme administrator’s external auditor.

The annual claim may not be based on an estimate but may only be made to recover an amount of tax deducted in respect of contributions paid in the tax year to which the claim relates.

The claim may be made at any time within 6 years after the end of the tax year concerned. However, where the scheme administrator has received repayment of tax from HMRC in respect of interim claims previously made for that tax year, the annual claim must be made by 5 October following the end of that tax year.

Interim claims

Regulations 10, 12 and 15 Registered Pension Schemes (Relief at Source) Regulations 2005 - SI 2005/3448

Scheme administrators making interim claims must use form APSS 105. This form is available at: Pension schemes: registered pension schemes relief at source interim claims (APSS 105) (GOV.UK).

Claims may not be based on an estimate, but may only be made to recover an amount of tax deducted in respect of contribution paid in the tax month to which the claim relates. A tax month runs from the sixth day of one month to the fifth of the following month). Interim claims may cover a maximum of three tax months, provided all of those months fall in the same tax year.

HMRC will not pay an interim claim for the tax month ending 5 July, or any subsequent month, unless they have received:

  • a fully completed annual return of information, if required, for the previous tax year to 5 April (see below), and
  • any information requested under a Regulation 15(1) notice in respect of any tax month.

HMRC will not pay interim claims of less than £50.

If HMRC is not satisfied with an interim claim, they will pay any lower amount that they consider to be due. There is no right of appeal against an HMRC decision on an interim claim.

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Excess interim relief claims and interest on them

Regulation 10 The Registered Pension Schemes (Relief at Source) Regulations 2005 – SI 2005/3448

Where a scheme administrator discovers that an amount paid by HMRC on an interim claim for a tax month ending on or after 5 April 2018 was excessive, within 90 days of discovery the scheme administrator must:

  • bring the excess relief into account on a further interim claim
  • repay the excess relief to HMRC along with the claim, and
  • submit a schedule of the excess relief claimed.

The schedule must contain the following information in respect of each member in respect of whom excess relief was claimed:

  • full name and permanent residential address at the time of making the further claim (including the postcode if the address is in the UK)
  • if different, the member’s permanent residential address (including the postcode if the address is in the UK) at the time the excess interim claim was made
  • NINO, or a statement of the reason why the member does not have a NINO (unless the member is under 16 years of age, or a citizen of a country outside the UK who is not resident in the UK)
  • date of birth
  • the date(s) on which the member (including any third party in respect of the member, other than the member’s employer) made a contribution in relation to which excess relief was claimed
  • if applicable, the date on which the member (including any third party in respect of the member, other than the member’s employer) ceased to make contributions to the scheme in respect of which excess relief was claimed
  • the amount of the member’s contributions (including any contributions by a third party, other than the member’s employer, in respect of the member) in respect of which excess relief had been claimed
  • the total amount of the excess relief claimed
  • the tax rate at which excess relief was claimed
  • the reason excess relief was claimed
  • the date on which the scheme administrator first claimed excess relief
  • the date on which the scheme administrator first discovered that excess relief had been claimed, and
  • the date on which HMRC originally paid the excess relief claim.

If the scheme administrator does not repay the excess relief to HMRC, it will become recoverable in the same way as tax charged by assessment on the scheme administrator.  Late payment interest will also be charged if the scheme administrator does not repay the excess relief within 90 days of discovery.  The interest charge will run from the date that the excess relief was originally paid to the scheme administrator by HMRC up to the date of repayment.

Note that the interest charge, and the requirement to provide a schedule of excess relief claimed, only applies in respect of relief claimed in interim claims for tax months ending on or after 5 April 2018.  Where a scheme administrator discovers than an interim claim for a tax month ending before 5 April 2018 was excessive, the excess should be brought into account in the next interim claim made after the discovery.

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Annual return of information

Regulation 15A The Registered Pension Schemes (Relief at Source) Regulations 2005 – SI 2005/3448

Where a scheme administrator has received a net contribution in a tax year, they must submit an annual return of information to HMRC within 3 months of the end of that tax year. 

The annual return of information must be made in the form prescribed by HMRC (see GOV.UK guidance Pension administrators: relief at source annual information returns) and must contain the following details:

Regarding the scheme:

  • the name of the scheme
  • the reference number allocated to the scheme by HMRC
  • the name of the scheme administrator
  • the reference number allocated to the scheme administrator by HMRC
  • the year of assessment to which the annual return of information relates.

Regarding each member in respect of whom a net contribution was paid to the scheme in the year of assessment:

  • full name and permanent residential address in the year of assessment in the year of assessment to which the return relates (including the postcode if the address is in the UK)
  • NINO or a statement of the reason why the member does not have a NINO (unless the member is under 16 years of age, or a citizen of a country outside the UK who is not resident in the UK)
  • date of birth
  • gender
  • unless the scheme is an occupational pension scheme, the category of status applicable to the member, or if more than one category is applicable, the one which represents the member’s principal source of income
  • the total contributions paid by the member, or a third party other than their employer, to the scheme in the year of assessment
  • the value of any life assurance premium contributions under section 195(A) FA 2004 (see PTM044100)
  • the value of any transfers under section 188(4) FA 2004 (Pension credit rights from non-registered pension schemes, see PTM042100)
  • the value of the member’s funds in the scheme, and
  • the date on which the member’s funds in the scheme were valued.

The annual return of information must also include a declaration made by the scheme administrator that the information provided is true and complete to the best of their knowledge.

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