Tax and “net-pay fallibility”.

papal 2

A curious feature of British middle-class life is the belief in the infallibility of Her Majesty’s Revenue and Customs. The old certainties of “death and taxes” are comforting. When tax-evaders are found out, it reinforces our sense of the rectitude of our public servants – who are – to our eyes – the still point in a turning world.

So it comes as a real shock when HMRC is shown up for being wrong. In the case of the “net-pay scandal”, HMRC are not just wrong, they are deliberately wrong, which – were the boot on the other foot- would see the hundreds of thousands of people denied their savings incentives, tax-cheats.

It comes as a real shock to read in FT Adviser yesterday (and 24 hours later) , these two statements.

  1. Outside Scotland, tax relief is applied at one of three marginal rates – 20, 40 and 50 per cent
  2. If a scheme is an occupational pension scheme, they have the option of using either relief at source or a net pay arrangement  – they can choose. If they are not an occupational pension scheme, for example if they are a master trust or a personal pension provider, then they must use relief at source.

This information – in the context of the article, appears to come from HMRC. Unless we are about to get a new tax-band in the budget later this month, the tax-rates quoted ARE WRONG. The statement on master-trusts having to use relief at  source IS WRONG. NOW is a mastertrust, it is one of a number of such schemes that uses net-pay and it is the reason for the letter published yesterday (on this blog).

HMRC can be wrong

Whether the mistakes emanate from HMRC or the FT isn’t really the issue. The question is can we trust a system that is so complicated that serious journalists and tax officials – don’t understand. The answer is of course “yes”. We will go on paying our taxes and we will go on regarding the FT and HMRC as authoritative.

But we must recognise that HMRC has no divine right to be right, there is no fiscal infallibility.

The case to reform the treatment of net-pay and relief at source is undeniable. It does not take legislation , it takes code, specifically the re-coding of the HMRC systems that adjust people’s tax codes to take into account their pension contributions.

And in case people think this is special pleading for low-earners, it isn’t. There is another group of earners, those tipping into higher rates, who are missing out on tax-relief and could do with a helping hand from HMRC. These are those who pay pension contributions under relief at source and don’t claim higher rate relief (the reverse issue of those on net-pay). Many marginal higher rate tax-payers do not fill out a tax assessment and don’t know they have higher rate relief available to them.

This is handy for HMRC, who no doubt build in the unclaimed money into their revenue projections, but it is not handy for people who are again missing out on incentives that should be their’ s.

It is no more right for Government to hide tax benefits than deny them. Those on relief at source should have a coding adjustment automatically when they make personal contributions.

The Government get real time information and we should get real time tax-relief!

No reason for delay.

The smart people at NOW have cottoned on to the bonnet up at HMRC (to adjust pay coding for those paying tax under the Scottish rates.

They have worked out that if the bonnet is up for one set of changes, it can stay up to sort out the tax-coding for those not getting incentives or tax-relief from pension contributions.

Thankfully, the industry (other than the dilatory ABI) have got behind NOW and spoken in a timely (pre-budget) fashion.

There is no reason for Chancellor Hammond to delay. I expect him, in his budget on 29th October to announce that he has instructed HMRC to make the changes so people get the tax-relief to which they are entitled but currently denied.

HMRC have been wrong too long, but persistent mistakes are still mistakes and should be put right at the earliest opportunity.


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in accountants, advice gap, age wage, pensions and tagged , , , , , . Bookmark the permalink.

Leave a Reply