Taxation! Taxation! Taxation!
Itís not every day I read something that makes me think ďBlimey!Ē, although I have to say it is something thatís happening to me more and more lately.† It happened just now in fact, when I read about some new rules on the taxation of pension overpayments from registered pension schemes.
Some new guidance has just come out from Her Majestyís Revenue & Customs (HMRC to you) that says unless schemes claw back any inadvertent payouts they make over the value of £250 such overpayments will be treated as Ďunauthorised paymentsí.† What that means is that the overpaid amount will attract a tax charge of 55% for the member and up to 40% for the scheme.† Basically it will be taxed to bits.
Fair enough I suppose, but it does mean that where a genuine error occurs (and, as we know, that can happen to anyone) there is no real leeway for scheme trustees to write off an overpayment.† Sometimes, in real life, trustees decide that thatís the best thing to do on the grounds of sensitivity if nothing else; you can imagine that could easily be the case where an overpayment is made to a deceased memberís dependant for instance.
But the new guidance says that trustees may not rely on the excuse that a decision not to pursue repayment is made on the grounds of sensitivity or even the disproportionate cost of retrieving the money.† If itís an overpayment and itís more than £250 it either has to be clawed back or itís an unauthorised payment and taxed accordingly.† Trustees and scheme administrators will have to keep their wits about them on this one.
23 May 2007
HM Revenue & Customs website, Registered Pension Schemes Manual, Chapter 12.†
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