HMRC is making it more difficult to verify pension tax relief claims; could you be losing out on additional funds?

Some higher and additional rate taxpayers who are already accustomed to filing will find the change difficult because they will now have to put in more work

In the wake of an HMRC crackdown, higher earners who wish to claim the additional tax relief owed to them on personal pension contributions must now adhere to new regulations.

For individuals who pay higher and additional rate income tax, HMRC has made it more difficult to claim pension tax relief as of September 1.

All applicants for larger amounts of pension tax relief are required to submit supporting documentation under the new regulations. In the past, only individuals who paid more than 10,000 over the course of a year were required to provide proof of a claim.

As a result, anyone claiming higher or additional rate tax relief (and the intermediate rate in Scotland) will need to speak with their pension provider to provide proof of their annual contributions to the plan, according to Charlene Young, senior pension and savings expert at AJ Bell.

You might need to get in touch with the pension company and request that they send it to you if you are unable to locate it when you log into your pension account or, if available, through the provider's app.

"This information must then be provided to HMRC when you file a claim for the tax relief that is due to you," she stated.

Why is HMRC altering the rules pertaining to pension tax relief?

Given the current status of the public finances, it is not surprising that HMRC is investigating tax system components that could close the tax gap and increase revenueseven before the budget is released.

"I can only assume that some sort of internal audit has been undertaken within HMRC that has highlighted a potential issue, as some of those who were paying in lump sums could have been doing so with minimal checks of their calculations," stated Gary Smith, financial planning partner and retirement in the wealth management firm Evelyn Partners.

According to Young, some higher-rate taxpayers who are already accustomed to filing will find the change difficult because they will now have to put in more work.

At the same time, it serves as a helpful reminder for everyone to review their pension plans and make sure they aren't losing out on any additional funds that may be due to them.

It's likely that many people believe their employer or the pension providers are taking care of these matters and that they are receiving the full tax relief to which they are entitled.

If you invest in a self-invested personal pension (Sipp, also called a pot for life pension) or another private pension, or if your employer offers a relief at source pension plan, the full amount of tax relief might not be applied automatically.

"Although it might seem like a hassle, you could receive a refund from the taxman worth hundreds or even thousands of pounds if you claim what you're owed," Young said.

It's estimated that thousands of savers have forgotten or are unaware that they are eligible for up to £1 billion in higher and additional rate pension tax relief, which has gone unclaimed.

How does tax relief for pensions operate?

The majority of people who have a workplace pension will benefit from tax relief through a net pay arrangement. As a result, you receive income tax relief at your marginal rate since your pension contributions are paid before taxes are withheld.

In most of the United Kingdom, that could be 20 percent for basic rate taxpayers, 40 percent for higher rate taxpayers, and 45 percent for additional rate taxpayers. Scottish taxpayers pay income tax on their earnings at various tax rates and tax bands.

However, if you are contributing to a private pension (like a Sipp) or your employer offers a relief at source pension plan, your contributions are deducted from your taxed earnings. You must claim any tax relief that is due to you over the basic rate of 20%, which is the additional 20% that HMRC adds," Young stated.

For example, the 13 million members of Nest Pensions, the largest workplace pension provider in the UK, benefit from a relief at source program.

Must I apply for pension tax relief?

Find a payslip first if you are unsure how to apply for pension tax relief. It ought to display your NI number along with any pension contributions you have made. Next, you have to determine what kind of scheme you are in.

With net pay plans, pension contributions are paid out before taxes are paid, so you already receive the full amount of pension tax relief and don't need to make a claim.

However, under relief at source programs, your business will deduct taxes before determining pension contributions. You must then claim the additional 20% (for higher rate taxpayers) or 25% (for additional rate taxpayers) of the basic rate relief that the pension plan will automatically claim.

"Contact your employer or the pension provider and ask them to tell you what type of scheme you are in if you can't tell from the information on your payslip," Young advised.

How to apply for tax relief for pensions.

There are a few ways to get in touch with HMRC directly in order to make a claim. You can incorporate the information into your tax return and obtain any necessary tax relief.

If you typically do not have to file a self-assessment tax return, you can go to the government website and click the link to submit a direct online claim for the additional relief from HMRC. To submit a claim, you must first log into your government gateway account, verify which tax year it pertains to, and then provide information about your employer, payroll number, and pension contribution.

Your paystubs or your p60, which is your year-end tax summary, should contain the majority of this information. After that, you will be required to upload supporting documentation for your claim, such as a copy of your paystub or a record of your pension contributions from the scheme provider.

Young stated, "Once the claim is processed, you will either receive that additional relief through a tax refund, an adjustment to your tax bill for the year, or your tax code adjustment."

Although it will take longer to process, you can also write to them.

Who is going to be impacted?

Smith of Evelyn Partners stated that the change would most likely affect people who currently do not have to file a self-assessment tax return and who submit their claims for additional pension tax relief directly to HMRC.

"Although the phone option is no longer available, I don't think this will be a major hardship because there are still options to apply directly by letter or, even better, online for those who are more at ease with digital services.

For this reason, people who are exempt from registering for self-assessment are still exempt from filing a tax return.

Instead of having the tax code for the following year changed, Smith added, it may be possible to request a lump sum payment of the relief that is due when applying directly to HMRC for pension tax relief.

"A proactive and informed approach is crucial to ensuring you stay in compliance with HMRC requirements and steer clear of any potential issues," stated Jon Greer, head of retirement policy at Quilter. Regularly checking your PAYE coding notices is also advised to make sure that any relief has been applied appropriately.

To clarify your position, get professional advice if you're not sure if you need to make a claim or how to proceed. Ensuring that you receive the relief to which you are entitled will require accurate record-keeping and early engagement as HMRC continues to tighten its procedures.