Member Since: 12th Jul 2003
26th Mar 2012
No. They do have PSTRs (pension scheme tax references) in the format 00000000RX.
26th Mar 2012
Taxhound is correct. Best source for official confirmation is HMRC Business Income Manual at BIM 46035.
20th Aug 2010
Pensions problems etc
Your understanding is correct. The availability of tax relief is limited to gross contributions equal to 100% of the individuals' relevant UK earnings for the tax year [FA 2004 s.190].
This is the case even if those earnings exceed the "annual allowance" [FA 2004 s.228]. This "allowance" (£245,000 for the tax year 2009-2010) is the threshold above which tax relief is clawed back by the "annual allowance charge" [FA 2004 s.227].
The allowance only relates to "tax-relieved" contributions by the individual, together with all employer contributions. It also applies to Defined Benefit accrual for the year - measured as the increase in the individual's pension rights* over the year.
It excludes [s.229(3)] contributions or accrual in a pension scheme where the member vests all his rights (which is what your informant was talking about).
Because your client's AVC was above his earned income, only £43k were "tax-relieved". Assuming his accrual within the scheme was valued at less than £202k, then he is within the annual allowance anyway, so the fact of being in the year of vesting is essentially irrelevant.
* 10 x the pension (before any commutation into a lump sum) + any lump sum entitlement which does not require commutation.
I think the software may be right. Higher rate relief for pension contributions is obtained by extending the basic rate band [FA 2004 s.192(4)], not by reducing STI**. Higher rate relief for the gift aid is also given by extending the basic rate band [ITA 2007 s.414]. In both cases, the basic rate relief is taken at source, and so the contribution/gift does not feature as a deduction in calculating the individual's tax liability.
The only restriction on gift aid relief is at ITA s.423, which ensures that the tax relief given for gifts does not exceed the individual's tax charged for the year in accordance with s.425 (or, if that isn't possible, exceeds it by as little as is possible), which it does by clawing back personal and age allowances and trade union subs. There isn't a provision to claw back the relief given at source.
Assuming there remains sufficient tax to frank the gift aid relief, there will therefore be no effect, even though the pension contribution is equal to the earnings.
** Confusingly, you do reduce STI by the gross pension contribution for the purposes of calculating income for age allowance clawbacks.
4th Mar 2010
The answer is that the 40% band stays at £112,600.
The legislation is FA 2009 Sch 2 para 11: "on the making of a claim the basic rate limit and the higher rate limit for the tax year in the individual’s case are increased by the amount of the contribution" - so the first threshold becomes £57,400 and the second threshold becomes £170,000 - the gap between the two remains at £112,600.
Andrew Meeson CTA ATT
17th Nov 2008
Question of timing
The PETs were initially presumed to be exempt, and so by definition were made gross. As a result, should any tax be due as a result of death within the 7 years following a PET, the tax will be payable by the donee.
As far as using up the NRB is concerned, the general principle is that chargeable transfers consume NRB in chronological order. The PETs become chargeable transfers made at the date of the original gift, and so any failed PET will use up nil-rate band in preference to the death estate. So, if all the failed PETs are within the NRB, all death-rate tax falls upon the estate. Only if the cumulative failed PETs exceed the NRB will there be tax payable by the donees.
What may be confusing you is the position when the death estate is split between personal and settled property - in such cases, an "estate rate" is established (total tax charged divided by total estate), and applied to each individual element of the total estate, with trustees bearing the tax for their settlements and the LPRs bearing the tax on the personal estate.
NB don't forget that being covered by the nil-rate band is NOT the same as being exempt or exempted.
20th May 2008
Speaking as both a CTA and a registered pension administrator, I can confirm that you are correct: the criteria set out in BIM 46035 are now what matter. Any other considerations (eg whether the contribution exceeds the salary etc etc) are irrelevant.
Don't forget also that your local Inspector cannot enquire into the CT deductibility of a pension contribution without clearance from APSS in Nottingham - if he does enquire, ask him to confirm he has referred the case to APSS.
2nd May 2008
You don't have to answer
TMA 1970 s.29 is not an information-gathering section. It is an assessing provision. If the Inspector has reason to believe that additional tax is due for 2003/04 (and assuming she can satisfy the conditions *), she may raise an assessment to collect this tax.
On the assumption that she believes there is extra tax due but doesn't know how much, the section does not give her the power to seek information from the taxpayer - it simply allows her to make an estimated assessment (against which the taxpayer will no doubt appeal, so that either a negotiated settlement under s.54 or a determination by Commissioners can follow - it is during this appeal process that information may be provided to HMRC).
* In order to make a discovery, HMRC will need to assert that either:
(1) there was negligence or fraud involved in the preparation of the tax return or
(2) the return did not provide her with sufficient information to enable her to have dealt with this during the normal enquiry window.
In the case of an income source entirely omitted from the return, she would be able to satisfy either of these tests.
6th Dec 2006
Not really likely
The argument that "the penalty is disproportionate" runs up against the fact that it nonetheless represents the clear will of Parliament. No court is going to overturn a statutory penalty on that basis. The fact that it has already once been mitigated by the Crown reinforces this.
HMRC no doubt feel that they have been generous in their mitigation, by having reduced the full statutory penaly to the level of the NIC paid late (this is a purely concessionary practice which aligns the P11Db/Class 1A penalty with the self assessment penalties). They would argue that the reduced penalty represents a commonly accepted measure of proportionality for such penalties. My view is that the courts would agree.
29th Nov 2006
Think of a company which has a red bucket and a larger green bucket.
The red bucket fills up during the year with profits. At the year end, the company is taxed on the contents of the red bucket, and what is left after tax is poured into the green bucket.
Next year, profits as they are earned pour into the (newly-emptied) red bucket, which is taxable, while any dividends are drawn from the green bucket, which - having already been taxed - is not taxable.
Isn't analogy wonderful! For completeness, it is worth mentioning that the red bucket carries a label that says "current year profit", while the green bucket's label says "retained profits".
13th Nov 2006
Pedants' Corner strikes again
I am in total agreement with Mark's comments (in particular his view that a one-man company's director may legitimately and deductibly draw total remuneration up to 100% of the company's profitability), with one minor (but, to the pedants among us, important) quibble:
Section 34(1) of ITTOIA has no relevance whatsoever to the computation of a limited company's tax liability. ICTA 1988 s.74(1) still applies for those purposes.