PTM044220 - Contributions: tax relief for members: methods: relief at source
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Introduction
The relevant rate of tax
Schemes and individuals that can use relief at source
Representatives
Information requirements before claiming relief at source
Total contributions declaration
Declaration about accuracy of information
Making a contribution
Taxpayers subject to tax rates above the relevant rate
Payment that is received later than the contribution date
Claims by scheme administrators
Excess interim relief claims and interest on them
Annual return of information
Introduction
Sections 192(1), (2) and (3) Finance Act 2004
Regulations 5 and 9 The Registered Pension Schemes (Relief at Source) Regulations 2005 - SI 2005/3448
Where a member contribution is paid into a pension scheme that qualifies for relief at source (RAS), the scheme administrator may recover tax relief from HMRC. The relief is calculated by reference to ‘the relevant rate’ (see below) which may be different depending on whether the member is a Scottish taxpayer, Welsh taxpayer or taxpayer in the rest of the UK. The scheme administrator adds the amount of the relief to the member’s pension fund. The relief amount and the member contribution amount together constitute the member’s contribution for tax purposes.
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
Before Scottish and Welsh rates of income tax were introduced, RAS was given at the ‘basic rate’ for all taxpayers. Since 6 April 2016, RAS has been given to members at ‘the relevant rate’ which may now be different depending on whether for a tax year the member is a Scottish taxpayer, Welsh taxpayer or taxpayer in the rest of the UK.
The relevant rate is:
- Scottish basic rate for Scottish taxpayers
- Welsh basic rate for Welsh taxpayers
- basic rate for taxpayers in the rest of the UK.
Scheme administrators should therefore claim RAS at the Scottish basic rate if the member is a Scottish taxpayer, at the Welsh basic rate if the member is a Welsh taxpayer, or at the basic rate if the member is a taxpayer in the rest of the UK.
The changes mean there could be different tax consequences for members who are Scottish or Welsh taxpayers. For guidance on the definition of these terms see the Scottish Taxpayer Technical Guidance at STTG2000 and the Welsh Taxpayer Technical Guidance at WTTG2000.
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 does not recover the difference between the Scottish starter and Scottish basic rate.
Members who are liable to income tax at rates higher than the relevant rate can make a personal claim to HMRC for further relief on their contributions – see the Taxpayers subject to tax rates above the relevant rate section below.
Schemes and individuals that can use relief at source
Sections 190(4), 191(2), 191(7) and Paragraph 40 Schedule 36 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
A member making a relievable 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.
The basic amount
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).
Retirement annuity contracts
Relief for contributions made to retirement annuity contracts is not required to be given under the RAS system; it can be given by making a claim. The decision whether to operate RAS rests with the annuity provider.
Representatives
Regulation 7 The Registered Pension Schemes (Relief at Source) Regulations 2005 - SI 2005/3448
Individuals must provide the scheme administrator with some basic personal information and declarations before they make relief at source contributions. In the following specific cases those obligations can be fulfilled by a particular representative of the individual.
Children under the age of 16
If the individual is a child under 16, their 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
In these cases, the individual’s obligations can be discharged:
- in England and Wales or Northern Ireland, by their attorney, receiver or deputy, or the person managing and administering their property and affairs; and
- in Scotland, by their 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
In such cases the obligations may be discharged by a person having a power of attorney in relation to the individual’s affairs.
Information requirements before claiming relief at source
Regulation 4(2) The Registered Pension Schemes (Relief at Source) Regulations 2005 - SI 2005/3448
Before an individual makes their first contribution to the pension scheme under relief at source, the scheme administrator must be given 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.
NINO
Individuals under the age of 16 and citizens of a country outside the UK who are not resident in the UK do not have to provide a statement that they don’t have a NINO.
If an individual has an administrative or temporary National Insurance reference they must still provide a statement that they do not have a valid NINO.
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) and 4(4) The Registered Pension Schemes (Relief at Source) Regulations 2005 - SI 2005/3448
The individual should state which category of status best describes their 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.
If the individual does not fall under 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 contributions’ 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.
Contributions cannot be made under relief at source and scheme administrators cannot claim the tax relief until the information and declaration requirements are satisfied.
Total contributions declaration
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, Scottish basic rate or Welsh 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 £800 to the pension scheme. The pension scheme claims £200 from HMRC. 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 which is the higher of:
- 100% of their relevant UK earnings, or
- the basic amount of £3,600.
Declaration about accuracy of information
Regulations 3 to 8 The Registered Pension Schemes (Relief at Source) Regulations 2005 - SI 2005/3448
The individual or their representative (as explained in the Representatives section above) must make a declaration to:
- confirm the accuracy and completeness of the basic personal information given to the scheme administrator as set out above at Information requirements before claiming relief at source.
- confirm that the contributions made using the relief at source system will be within the total contributions limit (see Total contributions declaration above).
- 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.
If a declaration is made in writing it must be signed by the individual or their representative (as set out in the Representatives section above). Where the basic personal information and declarations are communicated electronically and contain the electronic signature of the person giving them they will be regarded as being made in writing.
If, due to their employment an individual automatically becomes a member of a pension scheme their employer may give the basic personal information to the scheme administrator and make the declarations rather than the individual. The ‘playback’ requirements will then need to be met – see below.
Scheme administrator’s declaration (playback)
Regulation 8 The Registered Pension Schemes (Relief at Source) Regulations 2005 - SI 2005/3448
If the basic personal information or declarations given to the scheme administrator are:
- not in writing, or
- they are given by someone other than the individual or their representative (as set out in the Representatives section above),
the scheme administrator must replay all the information back to the individual and make a declaration on their behalf. This is often referred to as ‘playback’.
For example, where an individual automatically becomes a member of a pension scheme due to their employment the employer may provide the personal information and declarations. In these circumstances the scheme administrator must ensure the playback requirements are met.
To playback, the scheme administrator must send the individual a copy of the declaration it makes on their behalf. The playback may be sent in writing or by electronic communication containing the administrator’s electronic signature and must
- include all the basic personal information that has been given to them, as set out at Information requirements before claiming relief at source, and
- state the terms of the declarations that have been made, as described at points 1, 2 and 3 above.
The individual must be given the opportunity to review all the information sent to them to make sure it is correct. If the individual does not tell the administrator about any corrections or that they do not wish to become a member within 30 days, the scheme administrator’s playback declaration takes effect from the date it was sent.
If the individual does tell the scheme administrator about incorrect information, the administrator’s original playback declaration ceases to have effect and they should send a new, revised playback declaration.
If the individual told the administrator that the original playback declaration was incorrect within 30 days, and they do not inform the administrator that the new revised playback declaration is incorrect within 30 days of it being sent, the new revised playback declaration takes effect from the date the scheme administrator sent their original playback declaration.
Contributions cannot be made under relief at source and scheme administrators cannot claim the tax relief until the information and playback requirements are satisfied.
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.
Taxpayers subject to tax rates above the relevant rate
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, Scottish basic rate or Welsh basic rate can also be made to the tax office by 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.
Payment that is received later than the 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.
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, they must make an annual claim by 5 October following the end of that tax year. The annual claim must account for all payments (including excess relief payments on interim claims) made for that tax year.
If an annual claim has been made and the scheme administrator subsequently discovers that an error or mistake has been made in the claim, the scheme administrator should make a supplementary annual claim. For example, if a scheme administrator discovers that they received excess relief on an annual claim for a previous tax year, that excess should be reported and brought into account in a supplementary annual claim for the relevant 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 contributions 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.
As mentioned in the ‘Annual claims’ section immediately above, if the scheme administrator has received repayment of tax from HMRC in respect of interim claims previously made for a tax year, they must make an annual claim by 5 October following the end of the tax year in question. The annual claim must account for all payments (including excess relief payments on interim claims) for that tax year.
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:
- 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.
- the scheme administrator is still required to submit an annual claim by 5 October following the end of the tax year in question because they will have received repayment of tax in respect of interim claims for that tax year. The annual claim must account for all payments (including excess relief payments on interim claims) for that tax year - see the ‘Annual claims’ and ‘Interim claims’ sections immediately above under Claims by scheme administrators.
If a scheme administrator discovers that they received excess relief on an interim claim for a tax month ending before 5 April 2018, that excess can be reported and brought into account in the next interim claim made after the discovery or by submitting a supplementary annual claim for the relevant tax year using form APSS 106.
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.