HM Revenue & Customs  

HMRC pays back £29m in emergency pension tax

HMRC pays back £29m in emergency pension tax

HM Revenue and Customs (HMRC) has paid back almost £29m to people who have withdrawn money from their pensions during the first quarter of 2018.

The figure was published today (31 July) alongside details on the number of tax repayment claims forms the tax office processed during the second quarter of this year in respect of pension flexibility payments.

More than 14,000 pension flexibility claims forms were submitted to HMRC and a total value of £28,997,768 was paid out to people who had been charged emergency tax when they withdrew money from their pension.

Article continues after advert

Lump sums taken under the pension flexibility rules are pension income liable to tax under PAYE in the normal way and the taxman levies an emergency tax when the pension provider does not have a tax code for the member.

The figures mean the amount paid pack by HMRC has gone up 29 per cent since the first quarter of this year, said Jon Greer, head of retirement policy at Quilter.

He said: "What these numbers fail to reveal is the amount of people who have been overcharged and have not claimed back the emergency tax.

"The government’s PAYE system is not built for one-off withdrawals from a pension and so does not fit with the new world of pension freedoms.

"This means people who make such withdrawals from their pensions, as is their right, may overpay tax and have to wait up to 12 months or more to get the money back. HMRC automatically review tax liability, but only at the end of the tax year."

He explained the three different forms were created so people could claim back mid tax-year.

He said: "The government needs to ensure it is doing all it can to make sure people are aware of the possibility of over payment and how they can claim it back."

John Ditchfield, partner at financial advice firm Castlefield, said the emergency tax charge was a reality of the pension freedoms system.

He said: "The problem is that withdrawals are very complex transactions and our population is financially illiterate and people usually aren’t advised to understand things better.

"The current system isn’t set up to deal with the influx of withdrawals and so the tax code exists.

"With so many people in auto enrolment schemes, it is no wonder that not a lot of people understand the implications of withdrawing from their pensions. Over payment of tax is just a reality of the current system."

A HMRC spokesperson said: "Where an individual believes they have paid too much tax on their lump sum, they can claim this back in year. Claims are usually dealt with within 30 days.

"Where tax has been overpaid, but not claimed in year by the individual, HMRC will repay any overpaid tax after the tax year end during the normal reconciliation process."

rosie.quigley@ft.com