ICAEW “questions” pension tax relief proposals

The Institute of Chartered Accountants in England and Wales (ICAEW) has raised concerns over proposals to alter the level of tax relief on pensions contributions for low-earners, arguing that any changes could burden businesses.

The report comes after HM Treasury published a call for evidence on pensions tax relief administration in July this year.

The consultation document highlights concerns about the “potential for a low-earning individual’s take-home pay to be affected by the method of pensions tax relief operated by their pension scheme”.

Commenting on the consultation, HM Treasury said: “The government is keen to explore this issue further to understand what deliverable options for change may exist. This call for evidence seeks to gather evidence on the operation of both the main methods of administering pensions tax relief and what improvements might be made.”

The paper poses the questions: should non-tax-paying pension scheme members receive a “top-up equivalent” to basic rate tax on their pension contributions and, if so, should it be paid directly to the member or into their pension pot?

Under current legislation, workers paying into their pension pots receive 100 per cent tax relief of up to 100 per cent of earnings or a £40,000 annual allowance, whichever is lower.

Responding to the consultation, the ICAEW argues that there is a “danger that the potential complications of further changes could outweigh the benefit – especially at present when businesses have other pressing priorities”.

“ICAEW acknowledges that the 2006 A-Day and numerous subsequent changes have increased complexity but argues that the current rules are widely understood and work for the majority,” it said.

HM Treasury has now closed the call for evidence and will publish its proposals later this year.

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Posted in Blog, Business management, Business planning, Employees, Pensions Savings Investments.