The Income Tax (Pay As You Earn) (Amendment) Regulations 2016

09 December 2015

HMRC has published draft regulations which amends the information which employers and pension providers are required to report to HMRC. This includes information in respect of certain lump sum payments which are made from registered pension schemes.

The draft regulations make changes to the PAYE Real Time Information (RTI) regulations consequential to changes made by the Taxation of Pensions Act 2015 which allow individuals to access their pension savings flexibly, and the changes in the taxation of lump sum death benefits following the changes made in Finance (No 2) Bill 2016.

The changes require employers and pension providers to indicate in their real time information returns whether the payment they are making includes a payment of a certain type.

The Taxation of Pensions Act 2014 made a number of changes to the Finance Act 2004 to allow individuals with money purchase pension savings to flexibly access those savings from age 55. Where an individual receives a lump sum under the pension flexibility rules they are subject to a reduced annual allowance for pensions tax relief, the money purchase annual allowance. The money purchase annual allowance is intended to prevent individuals from using pension flexibility to avoid paying tax on their current earnings.

By reporting that the payment being made is a payment of a lump sum under the pension flexibility rules HMRC will know that the money purchase annual allowance applies in the case of this individual. The payments to be reported are:

  • the taxable portion of an uncrystallised funds pension lump sum
  • a payment of lifetime annuity made under a flexible annuity contract to which the member became entitled after 6 April 2015, where the contract allows for the payments to decrease and to continue to be paid after the member’s death until the end of any guarantee period
  • a payment from a member’s flexi access drawdown fund, and
  • a payment of scheme pension paid from a money purchase arrangement where there are fewer than 12 members including this member.

Comments on the draft regulations should be sent by email to pensions.policy@hmrc.gsi.gov.uk by 8 January 2016.