Pension schemes relief at source for Scottish Income Tax

21 February 2018

As the Scottish income tax rates and thresholds have now been approved by the Scottish Parliament, HMRC’s Pension Schemes Services has published a newsletter on the implications for pension schemes and their members in relation to the Relief at Source mechanism.

HM Government and HMRC have been working closely with the Scottish Government and with pension scheme administrators to assess the effects of these changes for pension tax relief and to clarify how the mechanisms for providing that relief will operate in respect of Scottish taxpayers.

“Net pay

Members of pension schemes who get pension tax relief through the ‘net pay’ mechanism have their pension contributions deducted before Income Tax is applied to their pay, so only pay tax on what’s left. Pension tax relief on these contributions will continue to be given by default at members’ marginal rate of tax, including the new and newly increased Scottish rates.

Relief at source

If you are the administrator of a pension scheme using the relief at source mechanism, you will continue to claim tax relief at the rate of 20% for members who are Scottish taxpayers.

For pension scheme members who are Scottish taxpayers liable to income tax at no more than the Scottish starter rate of 19%, or who pay no tax, current tax rules will continue to apply. This means that scheme administrators will continue to claim relief at 20% in respect of these individuals, and HMRC will not recover the difference between the Scottish starter and Scottish basic rate.

Pension scheme members who are Scottish taxpayers liable to income tax at the Scottish intermediate rate of 21% will be entitled to claim the additional 1% relief due on some or all of their contributions above the 20% tax relief paid to their scheme administrators. These pension scheme members will be able to claim the additional relief for 2018 to 2019 by contacting HMRC if they don’t already complete Self Assessment returns, or through their return if they do. HMRC will engage with stakeholders to help affected members claim this additional tax relief.

Pension scheme members who are Scottish taxpayers liable to Income Tax at the Scottish higher rate (41%) and Scottish top rate (46%) will be able to claim additional relief on their contributions up to their marginal rate of tax in the usual way, either in their Self Assessment tax return or if they don’t complete a tax return by contacting HMRC.”

The newsletter also contains information on:

  • Completing your annual return of individual information for 2017 to 2018

  • Notification of residency status report - January 2018

  • Look up residency status for relief at source

  • Updates to GOV.UK guides and the RPSCOM100(Z) spreadsheet

  • Relief at source regulations

  • Appendix 1 - messages for your members

  • Appendix 2 - messages for payroll providers

  • Appendix 3 - structured data for the annual return of individual information for 2017 to 2018

Highlighted in bold are messages specifically for pension scheme members (Appendix 1) and for payroll providers (Appendix 2) which explain in more detail how relief at source will work for the additional bands and rates and what action you need to take.

If you have any questions about the information in the newsletter, you can email HMRC’s Pension Schemes Services using “Relief at source for Scottish Income Tax Payroll” in the subject line of your email.

 

More news