HM Treasury  

MP probes HMRC on tax charges to pension scam victims

MP probes HMRC on tax charges to pension scam victims
Photographer: Luke MacGregor/Bloomberg

Stephen Timms, MP and chairperson of the Work and Pensions committee, has written to HM Treasury asking for “clarity” on the tax treatment of pension liberation victims.

In a letter sent on Monday (March 21) to the Treasury’s economic secretary John Glen, Timms asked if HM Revenue and Customs was monitoring the “quality and consistency” of its service and its treatment of pension scam victims.

Timms also asked what powers HMRC has to waive unauthorised payments tax charges, and whether the government would step in with further legislation if HMRC claims it is unable to stop pursuing the tax penalties of victims of pension liberation fraud.

In his letter, Timms cited the Work and Pensions committee's report into scams published in March 2021. It recognised that pension freedoms had put savers at a greater risk of being scammed.

Under current rules, pension holders are liable to be taxed if they, or anyone connected to them, access funds from their pension before their normal minimum pension age.

Early pension access as part of pension liberation scams represent the most common form of unauthorised payment, according to the committee’s report. 

These scams involve a fraudster making false promises to encourage someone to access their pension before the age of 55, usually leaving the victim with a substantial tax bill.

Someone who accesses their pension early faces an unauthorised payment charge of 40 per cent and an unauthorised payment surcharge of 15 per cent.

These penalties, while intended to act as a deterrent, “do not work in cases where a scammer has convinced a potential victim that the charge will not apply”, the report found.

In his letter, Timms asked Glen how many unauthorised payments charges were levied on people who were victims of pension scams between April 2009 and April 2014.

He also asked in how many cases was the charge reviewed, and what the outcome of these cases were.

In the committee’s March 2021 report, a recommendation was made to HMRC that it should make “greater use of its current discretion” to support pension scam victims left owing large tax bills, and to do “its upmost to provide them with certainty where possible”.

Timms asked Glen the following question: If HMRC is unable to make greater use of its current discretion, will the government consider changing the legislation to allow HMRC the option not to pursue the tax penalties of victims of pension liberation fraud?

Timms has given Glen until April 12 to reply.