Budget 2021: the government announces additional tax relief on net salaries – Law and regulations


The change, announced on Wednesday with the fall 2021 budget, comes after calls to end a net pay anomaly were raised in the 2020 budget, and a subsequent call for evidence was made.

The solution “will broadly level the playing field for all low-income savers,” Treasury Secretary John Glen said in the foreword to the document.

Currently, employees contributing to relief schemes at source receive a top-up of 20 percent on their pension contributions, even if they do not pay or have a lower income tax rate. In contrast, employees contributing to a net compensation scheme receive tax relief at their marginal rate, which, for those with taxable income equal to or less than the personal allowance, is 0 percent.

The proposed solution for low-paid workers is messy, late and may well be ineffective

Steve Webb, LCP

The government has stated that this “creates an anomaly in which people in similar situations receive different levels of tax relief and therefore have different levels of take-home pay, depending on how their pension plan handles the tax relief for them. pensions “.

But the change will introduce a system to make top-up payments directly to low-income people saving in NPA schemes for pension contributions made from 2024-25.

According to the response, up to 1.2 million people, 75% of them women, could benefit on average from £ 53 per year.

As a result of this change, all low-income savers are now expected to receive similar results, regardless of how their pension plan is administered for tax purposes, the government said.

The supplements will be paid after the end of the fiscal year concerned, the first payments being made in 2025-2026 and continuing thereafter. The Treasury said the delay between the announcement and the implementation of this system is due to the complex nature of the required IT system changes, as well as other ongoing delivery programs from HM Revenue & Customs.

The government intends to release a bill by day L 2022 to be legislated in a subsequent budget bill, although the government has said further discussions may be needed with the Scottish government as its starting rate tax bracket is 1% lower than in England.

Growing complexity

Sir Steve Webb, former pensions minister and LCP partner, welcomed the change but said the proposals pose several problems, including dependency on workers claiming the supplement and the risk of a ‘no – massive recourse “, while further contributing to the complexity of the pension system.

He said: “The proposed solution for low-paid workers is messy, late and may well be ineffective. The problem of low-paid workers who do not benefit from tax breaks has lasted for a decade and will remain unresolved for another three years. And if it is based on people claiming these refills, there is a real risk of non-use.

“This is yet another plaster response to a problem with the pension tax relief system, which requires a systematic overhaul,” he added.

Likewise, James Jones-Tinsley, technical specialist on self-invested pensions at Barnett Waddingham, said the change would benefit lower incomes, but questioned the government’s approach to the announcement.

He said: “Finally, the government has seen fit to honor its manifest commitment of 2019 to address the loophole of tax breaks on pensions. Hidden in the little red book is the introduction of a top-up system directly to low-income people saving in pension plans using a net pay arrangement from 2024-25.

“It may sound like the small print, but it will actually directly support the 1.5 million low-wage workers, mostly women, affected by the tax relief gap between workplace pension plans.” source relief ”and“ net pay, ”putting more money in the pension funds of those who need it most.

“The fact [Rishi] Sunak did not see fit to include this in his speech, however, betrays a larger problem – the government still fails to adequately address the subject of pensions. Whether it’s because it’s too complex, too obnoxious or too politically confrontational is unclear, ”Jones-Tinsley continued.

“However, without a real reform of the annual cash purchase allowance, the declining annual allowance and the death benefit tax system, neither the UK retirement dilemma nor the Treasury tax debt will not be resolved. “

Admin investing

The government will also invest £ 71million to modernize the administration of pension tax breaks, including RAS claims, and to address the McCloud claim.

In the response to the government consultation, there was a “clear consensus held by the vast majority of respondents that the SIR was both more complex and imposed more burdens than the net compensation agreements on the plans, the HMRC and members, ”the document says.

Of those respondents who commented on costs, all felt that the SIR was more costly than net compensation arrangements to administer.

To overcome this, the government announced an investment of £ 71million in modernizing the administration of pension tax breaks, including RAS claims.

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It comes after numerous calls to promote digitization have been made to the government as part of the call for evidence.

The document states that there was “overwhelming support for the digitization of RAS”, with nearly half of respondents expressing opinions on the subject and all were in favor.

Although the government acknowledged that the industry would need time to prepare, with a response suggesting a 12-24 month period, respondents said electronic form submissions should continue after Covid.


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