Pensions Tax Simplification Newsletter 28

2 July 2007

Contents

Introduction

Welcome to the twenty eighth edition of the Newsletter. We will no longer be publishing newsletters every month, but periodically as and when there is information or guidance that we feel customers need to know or would be interested in. If there is anything that you would like to see included in a future newsletter, please get in touch with PSS as detailed at the end of this newsletter.

Australian Pension Schemes and tax changes from 1 July 2007 – transfers from registered pension schemes

Australia has announced changes to its pensions taxation system which will take effect from 1 July 2007.

In some cases those changes would have led to a UK tax charge for individuals wishing to transfer pension funds from the UK to Australia where contributions have attracted UK tax relief.

To ensure that, from 1 July, Australian pension schemes can continue to meet the criteria to receive tax-free transfers from the UK new regulations have been laid so that an Australian complying superannuation plan which currently qualifies to receive tax-free transfers from the UK will continue to do so. The amendment will also mean that an Australian complying superannuation plan that wishes to become a qualifying recognised overseas pension scheme (QROPS) after 30 June will be able to do so.

Those Australian complying superannuation plans which feature on the HMRC QROPS list before 1 July 2007 will not be removed from the list because of the changes to the Australian pensions taxation system.

The amending regulations (PDF 34K) and an explanatory memorandum (PDF 87K) were laid before the House of Commons on 5 June. The Australian legislation setting out the definition of an Australian complying superannuation plan can be found in an annex to the explanatory memorandum.

Qualifying Recognised Overseas Pension Schemes (QROPS) List

We announced in Newsletter No 21 that we were publishing on our internet site a list of those QROPS (PDF 195K) that have consented to the disclosure of their status, and that we would be updating the list monthly.

We can assure UK Scheme Administrators that where a transfer to an overseas scheme is made in circumstances where they have relied on the current published QROPS list, they should have just and reasonable grounds for asking HMRC to discharge their liability to a scheme sanction charge if it transpires that the overseas scheme was not in fact a bona fide QROPS and is subsequently withdrawn from the list by HMRC. This is on the basis that we would expect the UK Scheme Administrator to have carried out reasonable checks. Before making an overseas transfer the UK Scheme Administrator should have checked the published QROPS list, and in particular must have done so no more than one day before the transfer was made. The UK Scheme Administrator should keep a note of the date on which they checked the list (and retain a copy of the overseas scheme’s HMRC QROPS letter if this has also been obtained).

In view of this, and as we will delete a scheme’s name from the list as a matter of urgency if it ceases to be a QROPS, UK Scheme Administrators should seek confirmation from HMRC regarding the status of a scheme that is on the published QROPS list only as a last resort if there is some reasonable doubt about the bona fides of the overseas scheme.

We recognise that it is more difficult for UK Scheme Administrators to be sure that an overseas scheme is a QROPS if it is not on the published list, and that this will be the case where the latest list was published before the scheme was accepted as a QROPS. We have decided therefore to publish the QROPS list twice a month, (at the beginning and in the middle of each month), where there are new QROPS that have been accepted since publication of the previous list. And to make things easier for UK Scheme Administrators we would advise them that they can check on the QROPS status of an unlisted scheme by sending PSS a form of authority they have obtained from an overseas scheme for HMRC to disclose its QROPS status even if it had not agreed to appear on the published list. The form must be signed by the manager of the overseas scheme in order for PSS to answer the enquiry.

UK Scheme Administrators can phone the PSS helpline to ask if an overseas scheme has been accepted as a QROPS since the last list was published. However, PSS will not be able to answer the enquiry if it is waiting to find out if the scheme is prepared to go on the published list.

UK Scheme Administrators can also phone PSS to check if the omission from the latest list of a scheme that had been included previously was due to the loss of its QROPS status.

Annual allowance test when a transfer is made from a registered pension scheme to a qualifying recognised overseas pension scheme (QROPS)

The annual allowance test for defined benefits arrangements and cash balance arrangements is done by comparing the value of rights between the opening value and closing value in a pension input period. Any increase in the rights between the two will produce the pension input amount to be tested.

To ensure that the test is applied to the correct amount of increase in rights that occurs during the input period, some adjustments are made to the closing value so as to compare like with like. For example, an adjustment is made when a transfer-out is made during the period. An addition is made to the closing value to reflect the transfer, to neutralise the effect of the transfer. Similarly, an adjustment to the closing value is made when a benefit crystallisation event (BCE) occurs for some of the rights within the arrangement. Again, the adjustment is in the form of making an addition to the closing value to reflect the rights crystallised, to neutralise their effect.

When a transfer is made from an arrangement under a registered pension scheme to a QROPS, both a transfer and a BCE (8) is taking place.

As there is only one transaction the effect of the legislation is that there is only one add back in these situations.

Guidance on reporting non-cash benefits provided after retirement

From 6 April 2006 non-cash benefits provided which are not from a registered pension scheme to a former employee who has retired from the employment may be taxable in the same way as cash benefits. The benefits are treated as employment income in the hands of the former employee unless the overall value of the benefits is no more than £100. This article relates solely to non-cash benefits provided in relation to employer financed retirement benefit schemes (EFRBs) and not to any benefits from registered schemes.

The responsible person (see EIM15036) for the EFRBS is required to send HMRC details of the relevant non-cash benefits provided to recipients in the tax year ended 5 April 2007. This report must reach HMRC by 7 July 2007. (There are however certain categories of non-cash benefit that are excluded from this charge as a result of changes the Government announced in this year’s Budget – see below.)

The benefit details should be provided on lists (not on forms P11Ds or P9Ds) and sent separately to any other returns and should be clearly headed 'Employer-Financed Retirement Benefit Scheme – Relevant Benefits' as well as specifying the tax year in which the benefits were provided. The lists should be sent to the HMRC office that deals with any PAYE scheme operated by the EFRBS or if there is no specific PAYE scheme for the EFRBS the list should be sent to the HMRC office that deals with the employer’s PAYE scheme. The guidance on the reporting of relevant benefits under an employer-financed retirement benefit scheme is at EIM15201.

The details to be reported are:

  • The name, address and national insurance number of the individual receiving the relevant benefit.
  • The nature of the benefit.
  • The amount of the relevant benefit, which is its value as calculated in accordance with EIM15120

Following representations made about the charge on non-cash benefits for retired employees and a review of the position the Government announced some further changes in the Budget on 21 March 2007. As a result of these changes, the taxation of non-cash benefits provided for retired former employees is being brought more closely into line with the taxation of those received by employees and retired employees will not be liable to tax on the following categories of non-cash benefits:

  • Continued provision by former employers of accommodation and certain related expenses.
  • Welfare counselling.
  • Recreational benefits.
  • Annual parties and similar functions costing up to £150.
  • Equipment for disabled former employees.
  • Writing of wills costing up to £150.
  • Benefits where the right to the continuing benefit arose on retirement before 6 April 1998. This exclusion applies to benefits received where the right to the continuing benefit arose in connection with a retirement before 6 April 1998 and that right was chargeable to tax.

Draft regulations (PDF 226K) were published this website on Budget Day. The changes are to be backdated to take effect from 6 April 2006. As employees will not be liable to tax for 2006-07 on the benefits listed above, the responsible person need not include them on the report of relevant benefits to be made by 7 July.

If the provision of benefits consists entirely of non-cash benefits from the above-mentioned categories then that provision will not constitute an EFRBS and no report need be submitted to HMRC.

Full guidance on EFRBS can be found in the Employment Income Manual (15000 – 15429) although the guidance has not yet been updated to reflect the changes announced in the Budget on 21 March 2007.

Bridging pensions – transitional provision

'Bridging pensions' are additional temporary pensions which some occupational pension schemes provide between the date of retirement from the employment to which the scheme relates and the date the member reaches State Pension Age. The scheme pension rules in paragraph 2(4)(c) of Schedule 28 to the Finance Act 2004 allow schemes to reduce a member’s bridging pension between the ages of 60 and 65 to broadly reflect the amount of State pension coming into payment. Paragraphs 2(4)(c) and 2(5) of Schedule 28 to the Finance Act 2004, and also The Registered Pension Scheme (Bridging Pensions) Regulations 2007 (SI 2007 No. 826), set out the amount by which a bridging pension may be reduced. Further guidance is available at RPSM 09101540.

We have received representations that certain schemes that paid bridging pensions before 6th April 2006 in accordance with the pre A-Day rules are now in a position that if they reduce the bridging pension by the full amount provided for in the scheme rules, the reduction would exceed that permitted by the current rules and so create an unauthorised payments tax charge. We intend to provide for transitional relief for these cases by secondary legislation. This will ensure that where schemes have paid bridging pensions in accordance with the pre A-Day rules then they can reduce those pensions when the member reaches State Pension Age by the full amount of bridging pension that has been paid. The transitional relief will apply to bridging pensions to which the member has become entitled on or before 2 July 2007. For bridging pensions that come into payment after this date, to prevent unauthorised payment tax charges applying, schemes must ensure that these pensions are reduced in accordance with the rules in Schedule 28 to the Finance Act 2004.

Responsibility for making a Registered Pension Scheme Return

Notices requiring the above returns to be made are issued to the person who is the Scheme Administrator at the time the notice is issued. There will be occasions when this person is replaced by a new Scheme Administrator before the return has been made. We have been asked who, in these circumstances, is responsible for making the return.

Section 271(2) FA 2004 provides that the person who becomes the Scheme Administrator should assume existing liabilities of the Scheme Administrator other than a liability to pay a penalty. These liabilities will include the need to make a registered pension scheme return and so it is the new Scheme Administrator who will be responsible for making the return in these circumstances.

Changes to contracting-out guidance and procedures

The contracting-out guidance has been amended to include the new forms and recent changes to our processes. The changes have been made to try and lessen the burden of completing unnecessary forms.

The main changes that have happened are as follows:

  • CA7329 Annual Returns – these will no longer be issued and any existing outstanding ones will not be pursued.
  • Periodic Returns – we will continue to issue these to holding companies until 1st August 2007. After this date the periodic return will no longer be issued by this office. All companies will have to notify any variations / changes on the APSS155 form as and when they occur. The reason this has changed is due to the very small take up from our customers on this service. We currently issue hundreds every year and get a very small percentage returned with more than one variation during the year.
  • After 1 October 2007, we will no longer accept the old style forms that were outlined in the old guidance. New Elections and variations must be notified to us on the new forms as detailed in the new guidance.
  • Contracting-out certificates are currently issued on a variety of coloured papers depending on the scheme type. When our current stocks run out, we will issue all contracting-out certificates on white paper.

The new guidance booklets CA14C, CA14D, CA14E and CA16A can be accessed on the Registered Pension Schemes: Forms and Completion Note page, by selecting ‘Contracted-out Guidance’. Selecting this will lead to a title page which will contain a table with links to all the revised booklets.

Government Actuary’s Department (GAD) Tables

Customers are reminded that all queries regarding the GAD tables – used to determine the basis amount for calculating the maximum income from unsecured pension funds and alternatively secured pension funds - should be addressed to HMRC via the Pensions Helpline. Please do not contact GAD direct.

E-mandation and e-filing

As announced in April, we will be introducing e-mandation for pension schemes from 16 October 2007. Whilst this is still 4 months away, you may in the meantime wish to check your scheme details held online or you may need to submit a report or return to HMRC, for example the Accounting for Tax Return for the quarter ending 30 June.

If you haven’t already used Pension Schemes Online and would like to use it now for the first time, you will need to register for the online service. Newsletter 20, provided guidance on how to register to use Pension Schemes Online. Also to help you to complete your registration for the service and provide guidance on how to navigate your way around the system, we have produced an additional step by step guide.

If you would like further information about Pension Schemes Online you can visit the Online Service Frequently Asked Questions (FAQs) page or contact our Online Services Helpdesk.

How to find out if a notice to file a Registered Pension Scheme Return or audited accounts has been issued

As we explained in the notice to file FAQs in Newsletter 27 if a Scheme Administrator is registered to use Pension Schemes Online, notices to file a Registered Pension Scheme return or audited accounts for a pension scheme are sent to them electronically (via their online Notice board on their welcome page). The Scheme Administrator is then also sent a paper notice if they have elected to receive these in addition to the electronic notice.

A notice to file a Registered Pension Scheme return or audited accounts for a pension scheme will only be sent to a Scheme Administrator who has notified HMRC they are a Scheme Administrator of a pension scheme. If there is more than one Scheme Administrator for a pension scheme then all of the Scheme Administrators will be able to view the notice by selecting ‘View all my Notices’ from the left hand navigation bar on their welcome page. Authorised Practitioners (and all Scheme Administrators) will be able to view the notice by going to the pension scheme record and selecting ‘View notices’.

For those schemes where we do not hold any notification that there is a Scheme Administrator we are issuing paper notices c/o the Establisher/sponsor of the pension scheme. We are also enclosing with these notices details of help available for Scheme Administrators in relation to their responsibilities, the guidance available from HMRC and the introduction of mandatory electronic filing from 16 October 2007.

Retention period for online forms partially completed and saved

Partially completed and saved forms are retained on Pension Schemes Online for a period of 7 days and then deleted, with the exception of:

  • An Event Report, where the saved data can be stored throughout the year will be kept until the end of February following the end of the tax year to which the Event Report relates. For example if the Event Report is for the tax year ended 5 April 2008 the data will be retained until 28 February 2009. If you start the report after the due filing date has expired saved Event Report data shall be kept for one month from the date you start. For example if the Event Report is for the tax year ended 5 April 2008 the filing date is 31 January 2009. The report is started on 14 February 2009 then any data saved would be saved until 13 March 2009.
  • An Accounting for Tax Return and a Registered Pension Scheme Return, where the saved data is retained for 30 days and then deleted.

Pension Scheme Self Assessment Tax Return

In April 2007 Pension Schemes Services issued around 7,000 Self Assessment Tax Returns (SA970) to pension scheme trustees. As advised in Newsletter No 25 they were issued to trustees of schemes where there had previously been a tax liability or a repayment claim.

We have received a number of enquiries from scheme advisors where the end date for the scheme accounting period has changed to 5 April 2007. The SA970 for 2005/06 will typically have shown details of tax liabilities/repayments for the 12 months ending on a date part way through the 2005/06 tax year. Advisors have asked what accounting period (or periods) should be returned on the SA970 for 2006/07.

For schemes that do not complete audited accounts trustees may choose to prepare either two sets of accounts or a single set of accounts for a period of more than 12 months ending on 5 April 2007. The SA970 for 2006/07 should include details of tax liabilities/repayments for the whole of both accounting periods or the single accounting period to 5 April 2007 (as appropriate).

Box 14.2 should be ticked where the SA970 has been completed for a period ending on 5 April 2007 even though the period exceeds 12 months. Trustees should provide a short explanation of the change in accounting periods in Box 13.2 (the additional information box).

Pension Schemes Online – let us know your views

We recognise that listening and responding to customer needs is vital for the successful development of our online services and we would like to hear your views about your Pension Schemes Online experience.

With this in mind and in order to make it quick and easy for you to tell us what you think, we have added a feedback form to the Pension Schemes Online service. The form can be accessed from the ‘logout page’ each time you use our online Pension Schemes product. It presents a series of statements, which you can simply agree or disagree with and there is a free text field for you to make further comments if you wish. Whilst we encourage you to tell us when something isn’t right and/or how you think something can be improved, we also like to know what we are doing well.

Although we cannot reply to feedback given in this way, our online services ‘Customer Feedback Team’ will review your comments and if appropriate we will use them to assist in the development of our online service.

Contact Us

If you have any questions about anything to do with new tax rules and you can’t find the answer in the Registered Pension Schemes Manual, please contact us by e-mail or phone our helpline number 0115 974 1600 (9.00 to 17.00 Monday to Friday) or you can write to us at:

Pension Schemes Services (PSS)
Yorke House
Castle Meadow Road
Nottingham
NG2 1BG