Plans to provide local tax inspectors with the ability to review whether qualifying pension contributions paid are tax deductible will only serve to throw ‘pensions simplification' into further quandary, an accountancy firm believes.
Accountancy firm, Wilkins Kennedy says new rules, following A-Day on 6 April 2006, will see local tax inspectors controlling the amount an individual can contribute to their pension taxs-free. The current system places a limit on the amount of salary an individual can place tax-free into pensions, within a clear set of rules.
Head of tax at Wilkins Kennedy, Peter Goodman is concerned at local tax office being given this power, due to a lack of previous experience among tax inspectors, adding a considerable extension to their responsibilities.
He says: “They will be expected to decide what constitutes a reasonable pension contribution in relation to employees.”
While Revenue & Customs (HMRC) claims local tax inspectors will follow ‘standardised procedures’ applying the new regime consistently across the country, Goodman points out: “Relying on inspectors’ judgements may lead to uncertainty and additional compliance costs for business.”
He further cautions possible regional differences arising where local tax offices are handed responsibility for applying Revenue policy.
“Businesses may feel that despite the complexity of the present rules they at least know where they stand, Goodman concludes.”Wilkins Kennedy says that the net result may be businesses paying too much into their pensions with a possible tax disallowance of part of the contribution, which may mean having to pay back some of the tax savings at a later date.
Looking forward, the firm warns a net result may be businesses paying too much into their pensions with a possible tax disallowance of part of the contribution. Firms may then have to return some of the tax savings at a later stage.
Marketing technical manager at Standard Life, John Lawson says the rules are likely only to apply to contributions paid by small owner managed businesses in respect of family employees.
He says while there is substance for possible concern, the HMRC is reported to be in the process of preparing guidance for its inspectors.
“I would urge HMRC to share that guidance with the industry so that we all know where we stand,” Lawson concludes.
Manager of pensions development at Scottish Equitable, Rachel Vahey says the Revenue is currently drafting guidance on the new tax regime aimed at the pension industry aswell as its own inspectors.
Vahey says: “We expect that the guidance will be published on the Revenue's website, and expect it to be published in tranches rather than in one go.”
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