Blick Rothenberg partner Mark Abbs shares his thoughts on what the Chancellor may do at the upcoming Budget.
The Chancellor should address the following issues for employers with regards to pensions and should not create even more issues by changing the pension rules further following the recent pension consultation. (i.e. if the Chancellor introduces a flat % of relief – cost to employers such as admin, especially considering recent costs implementing auto-enrolment).
The employer will now need to communicate the changes to employees otherwise they will need to manage a significant shock for the employee at the end of the year when the employee has a £13,500 tax bill they will not be expecting. Also, the employee did not receive the income so they will need to find this money somewhere (i.e. employer pays contribution into a pension, but the employee has to be taxed on this pension – they will need to find £13,500 of tax). (For example, £40,000 - £10,000 = excess £30,000 contributions that need to be reported as income on the UK tax return @ 45% = £13,500 underpaid tax).
The rules are based on total income and not only employment income from the employer. For example, if an employee earns £125,000 from the employer but has £50,000 personal income – How will the employer know this? Will the employee now have to tell his employer? Will he want to tell his employer about his personal affairs?
This could also have a significant impact on the employer where the employee is in a foreign pension scheme (the UK rules still apply even if foreign rules say higher pension contributions can be made). The issues continue if the foreign pension contributions are mandatory under foreign law and do not fit with UK law i.e. foreign law says you have to put £30,000 into an employer pension but UK law says if you do that we will tax £20,000. The employer cannot avoid the foreign law so the pension contributions have to be made and the tax therefore cannot be avoided.
The Chancellor will need to address all these issues in this year’s budget and clarify who will be liable to pay the additional cost of the pension changes – the employer or employee?
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