Claim Pension Tax Relief Instantly via New HMRC Service

Last month HMRC unveiled a new online system for claiming tax relief for private contributions to pension schemes if tax relief has not been granted via gross payroll deduction of if the full amount of tax relief due has not been granted at source.  The system was updated on 10^th March to adjust/fix any initial ‘teething problems’ and is now fully live.

Who Cannot Use This Service?

• If you already complete self assessment returns, you should continue to claim tax relief via self assessment and not use this new service.
• A basic, higher, or additional rate taxpayer that has a ‘net pay’ workplace pension.  This means your own private contributions will have been deducted from your gross pay meaning only your remaining ‘net pay’ is subject to income taxes meaning you have received tax relief instantly.
• A basic rate taxpayer that has paid private contributions to a private/personal pension or workplace pension and basic rate tax relief has been granted/added at source by your pension scheme provider. E.g. You paid in £80, and it was immediately grossed up by the pension provider to £100.

Who Should Use This Service?

• A basic rate taxpayer that has paid into a workplace pension, but the workplace scheme does not add tax relief at source to your contribution and therefore, does not claim that tax relief back from HMRC.
• A basic rate taxpayer that pays a lump sum into a private/personal pension or workplace pension that is not under a ‘net pay’ scheme i.e., the contribution was not deducted from your gross pay before income taxes were applied to remaining ‘net pay’.
• An intermediate rate (21% Scottish taxpayer) or a UK wide higher rate taxpayer that pays into a private/personal or workplace pension and has had 20% basic rate relief added at source by the pension provider meaning 1% tax relief is outstanding for an intermediate rate taxpayer and a further 20%+ tax relief is due to higher rate taxpayers.

What Information Does HMRC Need?

• Your National Insurance number and your payroll number or reference number (if applicable).
• The type of pension scheme and the name of the pension provider.
• The net amount of pension contributions for each tax year you’re claiming for (paid in).
• You will also need to upload or send proof from your pension provider of payments made for each tax year you’re claiming for, where any of the following apply:
• Contributions were more than £10,001.
• You paid in a lump sum.
• You are a basic rate taxpayer, and no tax relief has been claimed/added at source.

HMRC then suggests it will review your claim within 28 days.

Comment

Given pension tax relief refunds as well as refunds of withheld taxes on flexible drawdown payments can take many months to be refunded.  We assume this new ‘beta’ (in testing) system is designed to reduce the burden on HMRC and we hope it will speed up the tax reclaim/refunds process.

HMRC will also ask for feedback from those that use the system so it can make necessary improvements where required.

We are delighted that HMRC has introduced this system.  Apart from speeding up tax relief refund processes for the taxpayer, it should:

• Save the government £000,000s in employed work hours costs.
• Save the government £000,000s in repayment interest paid on monies owed to taxpayers.  The current repayment interest rates are:
• 0.5% pa until the Bank of England the base rate is above 1.5% pa.
• Then the repayment interest rate will increase in line with Bank of England base rate increases. 
• Currently, base rates are at 4.5% pa, which is 3.0% over the 1.5% level, so repayment interest rate is currently = 0.5% + the 3.0% increase in base rates over 1.5% = 3.5% pa repayment interest rate.

Visit HMRC’s Tax Relief Reclaim Page:  https://www.gov.uk/guidance/claim-tax-relief-on-your-private-pension-payments