Govt acknowledges pension tax relief error

Her Majesty’s Revenue & Customs (HMRC) has admitted that some scheme members are getting tax relief twice, while others are not receiving the tax relief they are due.

In a joint article from HMRC and The Pensions Regulator (TPR), it was revealed that the error is due to two differing ways in which members get tax relief.

The first is through the relief at source method and the other the net pay arrangement.

In the former, members make contributions from their pay once income tax has been deducted, the scheme administrator claims the basic rate relief from HMRC and pays that into their member’s pension scheme.

In the latter, members receive tax relief by contributing before their pay is taxed, meaning the member gets their tax relief immediately.

The article stated that, in instances where schemes use 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”.

Schemes which gave tax relief through the relief at source method sometimes received more tax relief than they are entitled to.

“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,” the article said.

HMRC are encouraging those who think that their pension scheme members are receiving the wrong amount of tax relief to notify them and they will “help correct the tax position and make sure the member gets the tax relief they’re due”.

This includes working with TPR to ensure that systems and processes are sufficient to monitor and report scheme contributions.

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