The Low Incomes Tax Reform Group (LITRG) welcomes today’s Public Accounts Committee report on the management of tax reliefs1 which highlights an issue affecting a significant number of low-paid workers who miss out on tax relief on their pension contributions.2
The report criticises HMRC and HM Treasury for being ‘insufficiently curious about the impact of some key tax reliefs on different groups’ and recommends that HMRC should publish more detailed data showing who benefits from pensions tax relief.
Victoria Todd, Head of LITRG, said:
“We welcome the Public Accounts Committee drawing attention to the issue of low-income workers missing out on tax relief on their pension contributions. This is an issue we have been drawing attention to for some time.
“Its recommendation of publishing more data is helpful in terms of making the issue more transparent so that policymakers can understand the impact, which – according to the existing data – shows that many more women are affected than men.3
“However, we would like to see government taking action to address the issue. The Conservative Party’s 2019 manifesto promised a review4 and we were expecting publication of a call for evidence in the spring. While it is understandable that this was delayed due to the impact of coronavirus, we hope that progress will quickly be made as we start to see those immediate pressures easing.”
Notes for editors
1. House of Commons Public Accounts Committee, Management of tax reliefs, Twelfth report of session 2019-21, HC 379 – see page 5, conclusions and recommendations point 2.
2. LITRG’s 2020 Budget Representation (https://www.litrg.org.uk/latest-news/submissions/200204-budget-representation-2020-net-pay-action-group) sets out why many low-income workers in pension schemes operating on a ‘net pay’ basis miss out on tax relief on their contributions and effectively pay 25% more for their pension savings than those in otherwise equivalent circumstances who contribute to a ‘relief a source’ basis scheme.
3. Latest available figures (Written Parliamentary Question HL2729: https://www.parliament.uk/business/publications/written-questions-answers-statements/written-question/Lords/2020-03-18/HL2729/) give an estimate of 1.5million people in net pay pension schemes missing out on tax relief as they are earning below the personal allowance. However, this figure is for 2017/18 when the personal allowance was £11,500 which then rose to £11,850 for 2018/19 and the £12,500 for 2019/20 (frozen too for 2020/21), so the figure may well be higher than 1.5million now. The PAC report quotes an estimate of 1.75million, with three quarters of those being women.
4. Conservative Party manifesto 2019, page 16: https://assets-global.website-files.com/5da42e2cae7ebd3f8bde353c/5dda924905da587992a064ba_Conservative%202019%20Manifesto.pdf
“A number of workers, disproportionately women, who earn between £10,000 and £12,500 have been missing out on pension benefits because of a loophole affecting people with net pay pension schemes. We will conduct a comprehensive review to look at how to fix this issue.”
5. Low Incomes Tax Reform Group
The LITRG is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998, LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. The CIOT’s 19,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
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