What pension tax reforms could we see in the October Budget?  

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For months, there was speculation that the upcoming Budget could bring major changes to pension tax relief, specifically a move towards a flat rate of tax relief for pension contributions.  

While nothing has yet been confirmed, reports in The Guardian suggest that these plans have now been dropped, leaving many wondering what this means for the future of pension policy. 

Why would pension tax reforms be abandoned? 

If the flat-rate tax relief proposal is indeed scrapped as suggested by reports in The Guardian, it could be due to the impact it would have had on public sector workers, many of whom benefit from generous defined benefit (DB) pension schemes.  

These schemes, which are largely unavailable in the private sector, offer guaranteed retirement income.  

A change to the tax relief system would result in higher tax bills for many workers. 

What does this mean for taxpayers? 

While the flat rate of tax relief looks to have been shelved, it does not mean pensions are completely off the table.  

The Government may still look for other ways to reform the system or raise revenue from pensions.  

For now, however, higher earners will continue to enjoy tax relief at 40 or 45 per cent, and those in defined benefit schemes look likely to be safe from additional tax charges to their contributions.  

The Chancellor might still consider smaller changes that affect the way pensions are taxed or the contribution limits. 

For example, the annual allowance, which is currently set at £60,000, could be reduced, especially for higher earners.  

This is the maximum amount an individual can contribute to their pension with tax relief each year.  

Reducing this limit would raise revenue for the Treasury and might still be seen as a way to target wealthier individuals without causing widespread disruption. 

Another possible area for reform could be the 25 per cent tax-free lump sum, which allows retirees to withdraw a portion of their pension pot without paying any tax.  

Reducing or capping this benefit could be an alternative way to generate tax revenue without directly increasing income tax or National Insurance. 

What about employer contributions? 

There have also been discussions about increasing mandatory employer pension contributions.  

Currently, employers are required to contribute at least three per cent to their employees’ pensions.  

If the Government follows Australia’s example, where employers contribute as much as 12 per cent, businesses could face significant cost increases.  

While this policy is not expected in this Budget, it remains a possibility for future reform. 

A move towards UK investment? 

Labour has expressed interest in encouraging pension funds to invest more in the UK economy.  

While there’s no specific policy announcement yet, there has been talk of requiring a portion of pension funds to be invested in UK assets.  

This could be part of a broader effort to boost domestic investment and stimulate economic growth, but it raises questions about whether such a mandate would be in the best interests of pension savers. 

Pension fund managers will need to weigh the potential risks and rewards of being required to invest in specific UK assets, particularly if they involve higher-risk investments. 

What to watch for next 

Chancellor Rachel Reeves has until 25 October to submit her final resolution on changing the Government’s fiscal rules ahead of the Budget, so we will likely know more about her final plans for pensions by then.  

Even though it looks probable that major pension tax reforms have been shelved for now, the Government’s need to raise revenue remains.  

Pensions are an attractive target for future changes, and individuals and businesses need to stay informed about any potential reforms. 

If you are a higher earner or a business owner concerned about how future changes could impact your pension contributions, now is a good time to review your pension strategy.  

Speak with our team to ensure you are prepared for any potential changes in pension policy. 

 

HMRC updates bank details for tax payments – What businesses need to know 

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HMRC updates bank details for tax payments – What businesses need to know 

Keeping up with tax payments is something every business owner knows is important.  

On that note, HM Revenue & Customs (HMRC) has recently updated its payment details for certain tax regimes. 

Bank transfers remain one of the easiest ways for businesses to pay taxes.  

Businesses must use the correct payment information and understand the payment processing times to ensure HMRC receives payments promptly. 

HMRC’s new bank details 

The new bank details for HMRC affect the below tax regimes: 

  • Plastic Packaging Tax 
  • Biofuels or gas for road use — Fuel Duty 
  • Economic Crime Levy 
  • Soft Drinks Industry Levy 
  • Trust Registration Penalty 

Use the following details depending on where your business bank account is based. 

If your business account is in the UK: 

  • Sort code – 08 32 10 
  • Account number – 12529599 
  • Account name – HMRC General Business Tax Receipts 

If your business account is overseas: 

  • IBAN – GB86 BARC 2005 1740 2043 74 
  • BIC – BARCGB22 
  • Account name – HMRC General Business Tax Receipts 

All payments must be made in pounds sterling. Banks may charge if any other currency is used. 

Tax return and payment deadlines for businesses 

Meeting tax deadlines is crucial to avoid penalties. There are two main deadlines businesses need to keep in mind: 

  • Tax return filing deadline – The deadline for submitting your tax return is 12 months after the end of the accounting period it covers. Failing to file on time will result in penalties. 
  • Corporation Tax payment deadline – The deadline to pay your Corporation Tax bill is usually nine months and one day after the end of the accounting period. 

Penalties for late filing of tax returns 

If you do not file your Company Tax Return by the deadline, you will face penalties. These penalties increase over time: 

  • One day late – £100 penalty 
  • Three months late – Another £100 penalty 
  • Six months late – HMRC will estimate your Corporation Tax bill and add a penalty of 10 per cent of the unpaid tax 
  • 12 months late – Another 10 per cent of any unpaid tax 

If your tax return is late three times in a row, the £100 penalties increase to £500 each. 

Penalties for tax returns more than six months late 

If your tax return is more than six months late, HMRC will issue a tax determination, estimating the amount of Corporation Tax owed.  

This is a legally binding assessment, and you cannot appeal against it. You must pay the Corporation Tax due and file your return. 

Once your return is submitted, HMRC will recalculate the interest and penalties you need to pay. 

HMRC charges interest on unpaid tax from the due date until the payment is made. As of 20 August 2024, the late payment interest rate is 7.50 per cent. 

Appeals against penalties 

If you have a reasonable excuse for missing a deadline, you can appeal against late filing penalties online.  

After completing the online form, print it and send it to the address provided on the form.  

However, you must file your Corporation Tax return before appealing. 

What you’ll need to appeal: 

  • Your company’s Unique Taxpayer Reference (UTR) 
  • The date on the penalty notice 
  • The penalty amount 
  • The end date of the accounting period the penalty relates to 
  • An explanation of why you missed the deadline 

For personalised advice on managing your tax obligations, contact our team of accountancy professionals who can provide expert advice.