Taxation of Pensions Bill

wRITTEN EVIDENCE SUBMITTED by the Association of Taxation Technicians (TP 12)



The Association of Taxation Technicians (ATT) is pleased to have the opportunity to comment on the draft legislation ‘Taxation of Pensions Bill’.

We have limited our comments to the proposed new reporting requirements which are set out in Part 6 of the Bill and also referred to in Chapter 8 the draft guidance released by HMRC on 21 October 2014. Pages 38 to 46 of this guidance cover reporting requirement that are already included in the draft Bill and also those which are still to be provided for in secondary legislation.


Our comments


Onus on members to report to other scheme administrators

Sections 8.1 to 8.3 of the draft guidance outline the procedure for notifying all schemes (of which an individual is a member) when that member has flexibly accessed their pension fund.

These provisions seem to put a lot of the burden onto a member to inform all of the other scheme administrators and specify a deadline of just 31 days to do so.

The scheme administrator of the fund which was first flexibly accessed has 31 days to inform the member of the obligation to inform their other scheme administrators. This is a fair time period as it will involve just one correspondence to that member and that should be achievable within the 31 day period.

However, we believe it is a very short deadline for the member to then have to contact all of their other schemes and we believe that the deadline for the member to do this ought to be extended to, say, 45 or 60 days, to recognise that there may be a number of letters or telephone calls that the member will need to undertake.

We also believe that the introduction of these new rules should be preceded by a well-publicised educational and promotional campaign put in place so that members understand their obligations and are not left bewildered by the terminology. For example, the requirement for a member to inform a scheme when they have flexibly accessed their pension for the first time will not apply if the individual became a scheme member as a result of a recognised transfer. It may be perfectly obvious to a pension advisor or other professional when this exception applies but the member may not be quite as well informed and so they will need to have adequate support and assistance to help them know who they do and do not need to inform.


The issues discussed in section 2.1 above become all the more important to consider as section 8.9 of the draft guidance indicates that penalties will be charged if the information is not provided on time. These penalties will be levied on the person who should have provided the information.

The whole idea of pension flexibility is such a new concept and the raft of new regulations being introduced in the Taxations of Pensions Bill will take time to be absorbed by everyone involved. In addition, final legislation is only likely to be published shortly before the implementation date of 6 April 2015. Taking all of this into consideration, the ATT believes that there is a case for the charging of penalties to be phased in gradually (as was the case with Real Time Information reporting) rather than imposing a penalty regime immediately from 6 April 2015 when everyone, members especially, are still getting to grips with the whole of this new regime.

Real Time Information (RTI)

When the ATT responded to the initial consultation Freedom and Choice In Pensions, we specifically highlighted that our major area of concern was the impact the reforms to the pension tax framework would have on PAYE systems. We commented:

‘If the taxpayer has the ability to draw down from more than one fund in a tax year, how will HMRC be able to apply the correct tax codes so that the correct amount of tax is collected in the year? A system that allows full flexibility is likely to lead to many more tax positions needing to be reconciled after the year end. Does HMRC have enough resources to cope with this on a timely basis?’

Section 8.10 of the draft guidance says nothing that alleviates our concerns in this area. In fact HMRC appears to be relying on end-of-year reconciliations in the vast majority of cases in order to rectify tax positions. It appears from the guidance that HMRC believes (and accepts) that only in cases where there is more than one payment (either regular or irregular) will there be no need to reconcile a person’s position at the year end. However, this is only true if the payments come from the same pension fund and the member has taken no other payments from any other pension fund in the same tax year.

HMRC has advised that the emergency code will not be operated where a P45 or tax code is provided. The ATT believes that the number of instances where either document is provided or even available will be very few indeed. If a member takes a flexible pension drawdown payment and it is the first one they have taken then what code can be operated, other than an emergency tax code? The member may have a tax code from an earlier year but it would not be appropriate to operate this code in very many cases.

Consider the case of someone who currently has only a state pension or even a small regular annuity which amounts to less than the personal allowance. Previously, HMRC may have issued a tax code that was not operated because there was no liability. The tax code would have existed, though, and the member would have been able to provide this code to a scheme administrator in the event of taking a flexible pension drawdown. We still do not believe that the application of the code would enable the correct amount of tax to be deducted in the case where a one-off withdrawal is made but it would at least make the error in the tax collected less than it would be using the emergency tax code.

HMRC has said that, under proposals to change how PAYE tax codes are issued, where it considers there is no tax liability a tax code will no longer be issued. Therefore, in our example, when a flexible drawdown payment is taken there will be no code currently in issue, resulting in the emergency code having to be used and an almost certain larger overpayment or underpayment occurring. Will HMRC now reconsider this proposal to hold back PAYE tax codes where it considers no liability arises, as it cannot know, now more than ever, what further pension income a pensioner may take in the tax year and that code ought to be available to the pensioner?

We do wonder whether HMRC has considered the resources it will need to deal with the very many reconciliations it will have to deal with. HMRC has said in the draft guidance that it will look to make repayments in-year, where the RTI system is correctly noted to show that a scheme has ended. However, a repayment made in-year based on the information of that one scheme would not take into account the payments a member might receive from other schemes that may be using the emergency code or an incorrect tax code. So a reconciliation at the year-end would still be needed and the repayment made in-year may need to be repaid to HMRC.

We considered all along that HMRC would have issues in getting someone’s tax position correct during the year when there was complete flexibility over pension. However, simply sitting back and relying on end-of-year reconciliations does not seem to be good enough, especially if the resources to deal with those reconciliations on a timely basis are not there.

Based on the proposals as they currently stand, it would appear to us that the only way a pensioner can be assured of having their tax affairs dealt with correctly would be to voluntarily complete a self-assessment tax return and claim any refund due through this recognised mechanism where returns can be dealt with electronically and refunds issued on a timely basis. As HMRC has, over the past few years, been keen to reduce the number of self-assessment tax return cases, surely it can only see an increase in the number of returns being submitted as undesirable. However, it seems highly unlikely that the ‘correct amount of tax’ will ever be deducted under PAYE with the proposed system and many taxpayers will face a frustrating wait to reclaim their money or indeed be faced with large tax liabilities coming out of the blue long after the tax year has ended – unless they voluntarily complete a self-assessment return.

The ATT has worked for a number of years with HMRC’s consultation group that deals with PAYE underpayments caused through HMRC error (ESC A19 cases) or employer error. We are concerned that any progress being made in this area will be curtailed by the increase in reconciliations created by these new proposals. Furthermore, we are concerned about the impact on ESC A19 cases since underpayment or overpayments being created during the year might start to be seen as the ‘norm’ (it certainly seems to be HMRC’s attitude from the reading of section 8.10). This might then erode the idea that any taxpayer could have a reasonable belief that their tax affairs were being dealt with correctly. There appear to be absolutely no assurances that tax affairs will be dealt with correctly for pensioners who take benefits under the new regime and it would seem they might have very little protection from ESC A19 as matters stand.

We note that the guidance says that the changes to RTI reporting are expected to be as they are currently set out in section 8.10 but are subject to change. We would urge HMRC to have a rethink about how best to deal with the collection of PAYE on flexible pension drawdowns before the secondary legislation is published. The PAYE system works satisfactorily in most cases of regular payments of salary or pension, but it would appear totally unable to get anywhere near the correct position for a one-off withdrawal. HMRC should consider whether there needs to be some entirely new basis for determining the initial tax deduction at source for a withdrawal from a pension fund as we believe that PAYE is unfit for purpose in this case.


We have covered the main concerns we have regarding the draft Taxation of Pensions Bill, focusing on the reporting requirements covered in Part 6 of the Bill and as outlined in Chapter 8 of the draft guidance issued by HMRC on 21 October 2014.

The ATT remain deeply concerned about the impact on the income tax position of pensioners considering taking benefits under the new regime. A system based on many end-of-year reconciliations being carried out with no legislative framework or structure (such as there is, for example with the self-assessment system where assessments are appealable – P800s are currently not appealable) will only lead to chaos and misery for very many frustrated pensioners.

November 2014


The Association is a charity and the leading professional body for those providing UK tax compliance services. Our primary charitable objective is to promote education and the study of tax administration and practice. One of our key aims is to provide an appropriate qualification for individuals who undertake tax compliance work. Drawing on our members' practical experience and knowledge, we contribute to consultations on the development of the UK tax system and seek to ensure that, for the general public, it is workable and as fair as possible.

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Prepared 18th November 2014