Tax Update 02/10

Keep up to date with the key announcements made this past week.

Top Slicing Relief on life insurance policy gains

Following on from the Silver case (see below), changes to Top Slicing Relief were included in the Finance Act 2020. In the wake of this change, the Chartered Institute of Taxation have released a update from HMRC on Top Slicing Relief on life insurance policy gains. The update confirms that allowances must be set, as far as possible, against other income in preference to the gain. This ensures that the personal allowance cannot be used twice in the tax year, which would lead to too much relief being claimed.

However the new measure will act to change how HMRC treat the personal allowance in the calculation of top slicing relief.

HMRC estimates that roughly 2,000 of the 45,000 customers who incur gains will enjoy the changes.

Taxpayers will need to submit paper returns for 2019/20 in order to benefit from the changes to the relief as HMRC have added the new Top Slicing Relief rules to the 2019-20 e-Filing exclusion list.

For 2020/21 the self-assessment calculator will be updated.

What was the Silver case?

The taxpayer’s argument was that when calculating the tax on the ‘top-slice’ of the gain (being the total event gain divided by the complete number of years held) as part of the process of calculating the relief, the taxpayer should be entitled to calculate their personal allowance based on their total income with only the slice considered. HMRC’s position was that the abated personal allowance calculated when taking account of the full gain should be used at this stage. HMRC’s approach would result in less relief and more tax. The tribunal sided with the taxpayer which caused the changes, which were included in the Finance Act 2020.

PAYE Settlement Agreement Payments

HMRC have recently confirmed to the Association of Taxation Technicians (ATT) that some employers with a PAYE settlement agreement (PSA) in place may not have received a payslip confirmation letter from HMRC for the 2019/20 tax year as they usually would.

In these cases HMRC have confirmed that employers should still pay the tax and NIC they have calculated and submitted for their PSA, instead of waiting for the confirmation letter to arrive.

Payments need to be made before the 22nd October 2020 deadline in order to avoid any late payment penalties and interest.

When making payment employers should quote their PSA reference number, if employers do not have their PSA reference number or are unsure about what action they should take then they should contact the PSA team on 0300 322 7077.

Pensions Schemes Newsletter September 2020

HMRC have released their latest Pension schemes newsletter.

The newsletter includes an update on the temporary changes to pension processes as a result of coronavirus. With the temporary changes now being extended until 31st March 2021.

Also included in this months newsletter are articles on:

  • Re-employment in response to the coronavirus outbreak
  • Relief at source and suspension of the process for applying for a National Insurance Number
  • Relief at source, annual return of information – notification of residency status reports
  • Call for evidence: Pensions Tax relief Administration
  • Managing Pension Schemes – Schemes without Pension Service Tax References
  • Managing Pension Schemes – Signing in to online services.