Welcome to the nineteenth edition of the Newsletter. As usual, this contains a mixture of articles of a technical and operational nature, along with some useful reminders to help you if you need to contact HMRC.
Please pass this Newsletter on to anyone else in your organisation who you think may find it useful.
It is the responsibility of the Scheme Administrator making a lump sum payment to or in respect of a member to determine the nature of that payment and to account for any tax due accordingly.
In some cases, the amount of the lump sum determined in accordance with the scheme rules may be computed with reference to an interest rate or to investment growth. A lump sum computed in this way will usually be taxed under the appropriate lump sum provisions in FA 2004.
In other cases, there may be an amount of interest paid in addition to the lump sum. This may simply arise because of a delay in making a payment or may be a payment over and above the computed lump sum for some other reason. As long as the interest is reasonable in amount - paid at a commercial rate -, it will be a scheme administration member payment. Where the nature of the payment is clearly interest, it must be taxed as such. The Scheme Administrator should make the payment gross (unless made to a non-resident) and the recipient should include the interest in a self-assessment tax return or notify liability if they do not receive a notice to make a return.
In each case, it is a question of fact, based on the circumstances of the case, whether a payment is a lump sum or comprises a lump sum plus a separate payment for interest and it is possible that different pension scheme rules could lead to different results.
This may be a particular issue with short service refund lump sums where it is common practice to include an element of interest in with the payment of refunded contributions. Where the amount of contributions are refunded up to the short service refund lump sum limit, then no element of interest can be included as part of the lump sum. A reasonable amount of interest can, of course, still be paid as a scheme administration member payment. If the contributions to be refunded are less than the limit then schemes may be able to provide for interest to be paid as part of the short service refund lump sum, in which case the tax treatment set out in section 205 FA 2004 will apply. The Scheme Administrator must determine the nature of the payment according to the scheme rules and taking account of the principles outlined above, but should also have regard to the short service refund lump sum upper limit in paragraph 5(2) schedule 29 FA 2004.
Some pension schemes have rules which allow them not to pursue overpayments of pensions below a certain amount if they cannot be recovered or because recovery is considered likely to be disproportionately expensive. Annuity providers may adopt the same practice. Typical examples of this are where pension payments are made after the recipient has died, where the overpayment is due to a delay in the Scheme Administrator being notified, resulting in one or more pension instalments actually being paid after the date of death.
HMRC has considered the position of these payments, in particular the significant administrative costs in dealing with the assessment and collection of such small unauthorised payments. So although these overpayments are unauthorised payments, HMRC is pleased to confirm that providing that the payment was
then the payments do not need to be reported on the scheme Event Report nor will the recipient need to report it on their own SA return.
Further guidance on this will be included within the Registered Pension Scheme Manual RPSM in due course.
We have been asked for clarification on the payment of winding-up lump sums and the employer undertaking required under paragraph 10, Schedule 29 Finance Act 2004. The undertaking is required from all current and former employers that have contributed to the scheme in respect of the member(s) who are to receive a winding up lump sum. The undertaking should be in writing and confirm that the employer will meet the condition in paragraph 10(3)(c). It should be sent to HMRC before the winding-up lump sum is paid.
Where the employer is no longer in existence then the condition in paragraph 10(3)(c) can be treated as having been complied with.
The Registered Pension Scheme manual (RPSM09105110) will be amended in due course.
We will shortly be seeking views from our customers on when we should introduce e-mandation for registering new pension schemes and the submitting of pensions reports and returns. Further information on this will be published in due course.
If you want to have the opportunity to give your views, please send an e-mail to APSS headed ‘e-mandation’ and giving your contact details including a telephone number where we can contact you.
We are still receiving the old style PS forms for events occurring post A-day. With effect from 5 October 2006, we will no longer accept old style forms.
If Scheme Administrators wish to report changes on paper forms they should submit an APSS 152 (PDF 67K) instead of a PS256/PS257.
We also no longer require the submission of Participating Employer forms PS 274. With effect from 5 October we will no longer acknowledge these or confirm acceptance to participate.
The end of September sees the end of the second quarter for ‘Accounting
for Tax purposes’. Scheme Administrators of registered pension schemes
who have tax to account for, for the period 1 July 2006 to 30 September 2006,
must make a return on the Accounting for Tax (AFT) return by 14 November 2006.
It can be submitted either online using Pension Schemes Online or using the paper form (APSS 302). Any tax due will also need to be paid be 14 November 2006.
Further information on this can be found in Newsletter no 15. In addition we will shortly be issuing a special newsletter providing further advice on filing the AFT and other forms online.
Any 1SF problems/arrears, please contact Luke Saxton on 0115 974 1665 at Audit and Pension Scheme Services, Nottingham.
If you have any questions about anything to do with tax rules for pensions and you cannot find the answer in the Registered Pension Schemes Manual, you can contact us by email, phone or write to us using the details found on our contact page.