Our involvement with HMRC’s DigiRAS working group is approaching its first anniversary, and whilst we look forward to the outcome of this hard work with the publication of the DigiRAS consultation in the Summer, it’s a good time to reflect on what will be a fundamental change for pension scheme tax relief.
A key proposal from HMRC is their intention to change the ethos for making tax reclaims; instead of relying on the member making a declaration to say they are entitled to tax relief; HMRC will decide whether tax can be reclaimed. The ball will be firmly in HMRC’s court with the decision on which members will receive tax relief or not, and this will replace the current blanket approach to claims. If providers are currently pre-funding the tax for their members, then this may pose a higher risk to continue once DigiRAS is introduced, especially if they have a significant number of members who don’t receive their tax when it is expected.
This change means granular details about the contributing members who want tax relief will need to be submitted to HMRC for every claim. Claims will be on a scheme basis through the managing pension schemes service, so if providers are not already splitting out their claims per scheme, this will be on the horizon. Large data transfers lend themselves to an automated process, and whether this will be via file transfer or API, what will be important will be the capacity for volume for whichever method is adopted.
HMRC propose to “match” the member data between the schemes and their own records, which as we know from Pensions Dashboards, matching data can bring its own complications. If members don’t match, then tax relief will not be given. What will be vital is the communication from HMRC regarding what hasn’t matched, and what this potentially will look like is ongoing in the working group.
Undoubtedly providers will need to have additional contact with their members to determine why there is a ‘no match’ and this may involve the member needing to correct their own data with HMRC. Automation will take away some of the heavy lifting around these new processes, but fundamentally we are encouraging HMRC to adopt a simple way to claim and to make corrections to claims.
Of course, none of this can be done without legislation, and when the consultation is released, it will be important for all of us who are involved in relief at source to review and comment.
We will continue to provide our pension scheme knowledge and systems expertise, so we can make this a strong and robust process for the industry.