Explanatory note (accessible version)
Updated 22 November 2023
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Clause 1: Pension relief at source
Summary
1. This measure provides the correct legislative framework for new relief at source (RAS) regulations, includes non-compliance with the new RAS regulations as grounds for de-registration of a pension scheme and makes provision for different relevant rates by regulations. The amendments made by this section have effect on and after 6 April 2025.
Details of the clause
2. Subsection (2) inserts a new paragraph into section 158(1) of Finance Act 2004 (FA04) to add failure by the scheme administrator to comply with provisions made by regulations under section 192(6) or (7) as grounds for de-registration.
3. Subsection (3)(a) substitutes subsection (1A) of section 192 FA04 with new paragraphs (a), (b) and (c). These paragraphs provide for “the relevant rate” to be Scottish basic rate for individuals who are Scottish taxpayers for the year in which the payment is made, the Welsh basic rate for Welsh taxpayers and in any other case, the basic rate for that tax year.
4. Subsection (3)(b) amends subsection (7)(d) so that HM Revenue and Customs (HMRC) can specify the consequences of failure to comply with information requirements prescribed by or under regulations that make provision for giving relief at source.
5. Subsection (3)(c) inserts a new paragraph (7A) that allows HMRC to make provision for penalties to apply to failures to comply with provisions made by or under regulations.
6. Subsection (3)(d) makes consequential changes to subsection (8) of section 192 FA04.
7. Subsection (3)(e) gives the Commissioners for HMRC the power to make regulations to amend the definition of “the relevant rate”.
8. Subsection (4) provides for consequential removal of sections 192A (relief at source: additional relief) and 192B (relief at source: excess relief).
9. Subsection (5) inserts a new subsection (1ZA) into section 282 (orders and regulations). This provides that regulations made under new subsection 192(8A) to amend the relevant rate are subjective to the affirmative procedure if they represent a reduction to “the relevant rate”.
10. Subsection (7) provides that these amendments have effect from the tax year 2025-26 onwards.
Background note
11. Relievable pension contributions made by an active member of a registered pension scheme attract tax relief. The legislation provides for two main methods by which relief is given, Relief at Source (RAS) or net pay arrangements. Under RAS, individuals contribute to their pension scheme after the deduction of income tax. The pension scheme administrator (PSA) then recovers from HMRC an amount equal to the basic rate of tax, including where applicable the devolved basic rates.
12. At Autumn Budget and Spending Review 2021, the government announced it would legislate in a future Finance Bill to improve the administration of pension tax relief. These changes will enable the digitalisation of the current largely paper processes for claiming RAS. The key aims of the online service are to deliver modern solutions to improving the experience for PSAs, supporting the provision of information and declarations, provide faster in year payments to pension schemes and to reduce errors.
13. If you have any questions about this change, or comments on the legislation, please contact Pensions Policy Team on 03000 512336 (email: pensions.policy@hmrc.gov.uk).