HMRC using stricter powers to check individuals’ pension tax position

HMRC has recently issued a number of formal information notices to taxpayers who may have potential tax issues with their pension savings dating back to 2017/18.  The powers being used are much stricter than the other routes available to them and could lead to higher levels of penalties.

The government has long advised individuals to make adequate personal pension savings to support themselves in retirement, in order avoid relying solely on the State Pension. As such, tax incentives are available to encourage personal pension contributions, and employers are required to auto-enrol staff into employer pension schemes.

HMRC now appears to have launched a new campaign to check the historic tax position of individuals with significant pension savings.

The taxation of pensions can be confusing, as the rules have changed many times over the years. Tax charges can arise where limits that can be contributed into a pension each year, or the total value of the pension pot, are breached. It is therefore not uncommon for taxpayers to unknowingly face a tax charge in relation to their pension savings.

HMRC has statutory powers which allow them to obtain information to check the accuracy of the reporting of pension contributions for tax purposes. Usually this will take the form of an enquiry into a self-assessment tax return within a year of it being filed. However, once this enquiry window has passed, HMRC can still informally request information and potentially issue a formal information notice, known as a Schedule 36 notice, to check the tax position.

Schedule 36 notices were introduced in 2009 to assist HMRC in dealing with cases of non-cooperation from the taxpayer. Broadly, the notices formally require taxpayers to provide documents and information to HMRC within a set period or face penalties for failing to do so.   

Initially, Schedule 36 notices were only issued in response to a taxpayer’s lack of cooperation with an informal request, but we are increasingly noting that HMRC is now issuing these even if it is the first time contacting the taxpayer. 

The most recent examples we have seen relate to potential tax charges arising from pension issues in the 2017/18 tax year. The notices request significant amounts of information within 30 days. This can be a tight deadline given that the taxpayer will most likely need to contact their pension provider to obtain that information.
Failing to respond to the notice within the deadline can lead to the imposition of one-off and daily penalties, even where no tax adjustment is ultimately required. It is therefore important that taxpayers who receive such a notice seek appropriate advice to engage with HMRC and respond quickly.

Whilst it is absolutely correct that HMRC should have the opportunity to review and correct errors, we have to question whether going straight to a formal information notice is the right approach, given that it was initially designed to target those not willing to cooperate with HMRC. 

It remains unclear why HMRC is failing to apply the usual approach of an informal request for information, with a formal notice to follow for those who do not respond.