HMRC has ‘no clue’ how many people are facing fines for breaching pension tax relief rules

18 July 2019

It has emerged that HMRC does not know how many people are being charged for breaching tax relief rules.


Each year, most people are able to pay £40,000 a year into their pension and get tax relief on their contributions.

However, following a change of rules in 2015, once you start taking lump sums out of your pension a new lower allowance is triggered.

This new Money Purchase Annual Allowance (MPAA) was initially set at £10,000 but was then reduced to just £4,000 in 2017.

The MPAA was introduced to prevent so-called 'recycling' - where people take money out of their pension only to pay it straight back in - capitalising on tax relief on the way in and tax-free cash when they take it out.

Under the current system, when an individual takes money out of one pension their provider will inform them of their new reduced allowance. That individual then has three months to inform other active pension schemes.

If they fail to do this a £300 fine can be charged which can escalate at a rate of £60 a day.

A freedom of information (FOI) request has been made by pension provider Royal London to establish how many people have failed to notify their pension provider that they have triggered the MPAA, and the revenues raised by fines from HMRC.

In the result of the FOI HMRC has admitted that it holds the information necessary, but it is too expensive to examine further.

In its response to the FOI, HMRC said: "I can confirm HMRC holds information falling within scope of your request. However, we estimate that it would exceed the FOIA cost limit to deal with it.

"The cost limit, which is specified in regulations, equates to one person spending 3 1⁄2 working days locating and extracting all of the information within scope of the request. Consequently...HMRC is not obliged to comply with your request and we will not be processing it further.

"Normally, HMRC would explore with you how you might be able to narrow or refine your request so that it did not exceed the FOIA cost limit. However, in this case, I cannot see any scope for doing this."

Steve Webb, director of policy at Royal London is incredulous about this response: "It is truly astonishing that HMRC are presumably fining people for not complying with complex regulation but do not even bother to keep track of how many people they are fining," he says.

"HMRC would take a dim view of any taxpayer who did not keep proper records, yet they appear not to have a clue about their own actions. If large numbers of people are being fined for non-compliance then we need to know so that more can be done to alert customers as to their responsibilities under the law.  

"Even if HMRC have no historic information, they should, at the very least, start to keep records now."

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