PFS What's new bulletin - February II

TAXATION AND TRUSTS

 

The impact of small company threshold changes on IR35 burdens (AF1, AF2, JO3, RO3)

 

Off-payroll working rules (IR35) and thresholds changes that mean some medium-sized companies will, at some point in the future, become small companies, and therefore, no longer have to decide on a worker’s IR35 status.

 

Since 6 April 2021, all medium and large-sized private sector organisations are responsible for deciding if the IR35 rules apply to their contractors. This means that the rules apply if the organisation has two or more out of: an annual turnover of more than £10.2 million; a balance sheet total of more than £5.1 million; more than 50 employees.

 

Public sector organisations have been responsible for deciding if the IR35 rules apply to their contractors since 6 April 2017.

 

The off-payroll working rules are intended to make sure that, where an individual would have been an employee if they were providing their services directly, they pay broadly the same tax and national insurance (NICs) as an employee. The rules can apply if a worker/contractor provides their services to a client (i.e. a private sector or public sector organisation) through their own intermediary, such as the worker’s own limited company - known as a personal service company, a partnership, or another individual. Typically, the intermediary will be a personal service company.

 

Note that if a worker provides services to a small private sector organisation, the worker is responsible for deciding their employment status and if the IR35 rules apply.

The Government laid new regulations before Parliament on 10 December 2024, The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 under Statutory Instrument number 2024/1303, enabling them to raise the monetary size thresholds for micro, small and medium-sized enterprises from 6 April 2025. 

 

The accompanying explanatory memorandum explained that the primary aim was to simplify regulatory requirements and alleviate business reporting burdens. However, this also means that some existing medium-sized companies will qualify for being small and will no longer be responsible for deciding if the IR35 rules apply to their contractors. As mentioned above, this only applies where workers are engaged through intermediaries (such as a limited company) and working for clients that are medium or large companies.

 

 

 

 

 

 

Under the rules, small companies would need to satisfy two or more of the following criteria:

 

Measure	Existing threshold	New threshold
Turnover	Not more than £10.2m	Increases to £15m
Balance sheet total	Not more than £5.1m	Increases to £7.5m
Number of employees	Not more than 50	No change

 

However, although the threshold changes apply from 6 April 2025, the exact point at which a medium sized company could become a small company, will depend on a number of factors, including the company’s year end.

 

To determine the date that a medium sized company will become a small company requires consideration of three areas of the statute:

 

·         Chapter 10 ITEPA Section 60A – when a company qualifies as small for a tax year. 

·         Companies Act 2006 Section 382 – small companies thresholds. 

·         Changes under SI/2024/1303 Reg 3 – transitional provision. 

 

Section 382(3) says that a company meets the qualifying conditions in a year that satisfies two or more of the requirements. However, Section 382(2) says that, for subsequent financial years after the first year, where a company meets or ceases to meet the qualifying conditions, that affects its qualification as a small company only if it occurs in two consecutive financial years. So, a company must be small for two years before they are no longer a medium size company.

 

Under the Reg 3 transitional provision, a company is to be treated as having qualified (and met the qualifying conditions) as a small company in any previous year in which it would have so qualified if amendments to the same effect as the amendments made by regulations 9 and 10 (for example, threshold changes) had had effect in relation to that year and preceding financial years. However, that rule only applies if the financial year begins on or after 6 April 2025.

 

Looking at Section 60A ITEPA 2003 – when a company qualifies as small for a tax year, for existing companies, the statute says that the small companies regime applies to the company for its last financial year that is relevant to the tax year and that a financial year of a company is “relevant to” a tax year if the period for filing the company’s accounts and reports for the financial year ends before the beginning of the tax year.

 

The Government’s explanatory memorandum (points 9.5) confirms that the changes will impact “the application of the off-payroll working tax rules, under Part 2 of the Income Tax (Earnings and Pensions) Act 2003, commonly referred to as IR35”, and that it is “…expected to result in an Exchequer cost of approximately £20m per annum from 2026/27 onwards.”

 

However, although HMRC’s statutory interpretation makes the earliest year 2026/27, other commentators believe the earliest possible year for this to apply is 2027/28. 

Government review of powers for landlords to collect rent from benefit payments

(AF1, RO3)

 

The current system that automatically approves landlord requests to deduct tenants’ benefits to pay rent arrears and ongoing rent payments is being re-examined.

 

This decision comes in response to a high-profile legal challenge in January, which was won by Nathan Roberts whose benefits were deducted and automatically paid to his landlord to cover alleged rent arrears and ongoing rent payments - despite a dispute about repairs to the property. The Department for Work and Pensions (DWP) has decided not to appeal the judgment.

 

Currently, a computer program automatically approves landlord requests to deduct up to a fifth of someone’s monthly Universal Credit payments for outstanding rent repayments without them being consulted by either their landlord or DWP.

 

The DWP will now look at this process and consider better ways of ensuring landlords get the rent they are owed in a fair and proportionate way while benefit claimants are protected from falling into debt.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INVESTMENT PLANNING

 

The latest UK property statistics

(AF1, RO3)

 

The latest UK property statistics provide residential and non-residential transactions estimates during the previous three years.

 

The provisional seasonally adjusted estimate of the number of UK residential transactions in January 2025 was 95,110, 14% higher than January 2024 and marginally lower (less than 1%) than December 2024. The provisional non-seasonally adjusted number of UK residential transactions in January 2025 is 81,360, 21% higher than January 2024 and 17% lower than December 2024.

 

Non-seasonally adjusted and seasonally adjusted UK residential property transactions by month between January 2022 and January 2025:

 

The figures above show the following trends for UK residential transactions:

 

·         seasonally adjusted residential transactions have stabilised following a sharp increase in October 2024 and fall in November. Provisional figures for January 2025 decreased by less than 1% from December 2024;

·         non-seasonally adjusted transactions decreased by 17% in January 2025 relative to December 2024.

 

In relation to non-residential transactions, seasonally adjusted non-residential transactions have also remained relatively stable following a spike in October 2024 and a subsequent fall, with figures for January 2025 decreasing by 4% relative to December 2024. Non-seasonally adjusted non-residential transactions are 19% lower relative to December 2024. Seasonally adjusted non-residential transactions are 5% lower than in January 2024. Non-seasonally adjusted non-residential transactions are 3% lower than January 2024.

 

 

Bank of England Money and Credit - January 2025

(ER1, LP2, RO7)

 

Bottom of Form

The Bank of England (BoE) has published its latest Money and Credit report. Some of the main highlights include:

 

·         Households deposited, on net, an additional £8.4bn with banks and building societies in January, following net deposits of £4.7bn in December. This was driven by households depositing an additional £5.4bn into interest-bearing sight accounts, and £2.2bn into ISAs. Households deposited £1.2bn into non-interest-bearing sight accounts and withdrew £1.4bn from interest-bearing time accounts. (Time accounts pay a fixed rate of interest until a given maturity date. Funds placed in a time account usually cannot be withdrawn prior to maturity or they can perhaps only be withdrawn with advanced notice and/or by having a penalty assessed. Sight accounts are accounts from which money can be withdrawn either without notice, or after a very short notice period.)

 

·         The effective interest rate paid on individuals’ new time deposit accounts with banks and building societies decreased by 5 basis points from 3.96% in December to 3.91% in January. The effective rate on the outstanding stock of time deposit accounts was 3.69% in January, down from 3.74% in December. The effective rate on the outstanding stock of sight deposit accounts was 2.11% in January, down from 2.17% in December.

 

·         Individuals borrowed, on net, £4.2bn of mortgage debt in January, £0.9bn up from £3.3bn in December, following an increase in net borrowing of £1.1bn in December. The annual growth rate for net mortgage lending rose, for the eleventh consecutive month, to 1.8% in January from 1.5% in December. Gross lending was little changed at £21.3bn in January, whilst gross repayments were decreased to £16.3bn in January, compared to £18.5bn in December.

 

·         Net mortgage approvals for house purchases (that is, approvals net of cancellations), which is an indicator of future borrowing, decreased by 300 to 66,200 in January, compared to a 400 increase in December. Net approvals for remortgaging (which only capture remortgaging with a different lender) increased by 2,200, from 30,700 in December to 32,900 in January, after falling for the previous two months.

 

·         The ‘effective’ interest rate – the actual interest rate paid – on newly drawn mortgages was 4.51% in January, up from 4.47% in December. The rate on the outstanding stock of mortgages was 3.81% in January, up from 3.79% in December.  

 

·         Net borrowing on consumer credit by individuals rose to £1.7bn in January, from £1.1bn in December. Within this, net borrowing through credit cards increased from £0.4bn in December to £1.1bn in January, , and was the highest increase since November 2023 (£1.2bn). Net borrowing through other forms of consumer credit (such as car dealership finance and personal loans) remained at £0.7bn in January. The annual growth rate for all consumer credit decreased slightly to 6.4% in January, down from5% in December. The annual growth rate for credit card borrowing increased to 8.5% in January from 8.1% in December, and other forms of consumer credit fell to 5.5% in January from 5.8% in December.

 

·         The effective interest rate on interest-charging overdrafts increased by 57 basis points, from 22.50% in December to 23.07% in January, a series high. The effective rate on interest-bearing credit cards increased by 28 basis points during this period, from 21.57% to 21.85%, also a series high. Meanwhile, the effective rate on new personal loans to individuals decreased by 6 basis points from 8.85% in December to 8.79% in January.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PENSIONS

 

HMRC Pension Schemes Newsletter 167 – March 2025

(AF8, FA2, JO5, RO4)

 

Pension scheme newsletter 167 covers the following:

 

• The Managing pension schemes service;
• transfers to Qualifying Recognised Overseas Pension Schemes (QROPS);
• Qualifying Recognised Overseas Pension Schemes (QROPS);
• lifetime allowance (LTA) abolition lump sum reporting;
• relief at source.

 

 

Areas of particular interest:

 

Qualifying Recognised Overseas Pension Schemes (QROPS)

 

Transfers to QROPS

 

HMRC have updated the Pension schemes: member information (APSS263) form to include the amount of the available overseas transfer allowance.

 

This form is completed by pension scheme members when requesting a transfer sums to a QROPS.

 

Aligning the treatment of transfers to Overseas Pension Schemes (OPS) and Recognised Overseas Pension Schemes (ROPS) established in the European Economic Area (EEA)

 

From 6 April 2025, the conditions schemes established in the EEA need to meet to be an OPS and ROPS will be brought in line with the conditions that must be met by schemes established in the rest of the world.

 

An OPS will be required to be regulated by a regulator of pension schemes in that country.

 

A ROPS must be established in a country or territory with which the UK has a Double Tax Agreement providing for the exchange of information, or a Tax Information Exchange Agreement.

 

HMRC will shortly write to scheme managers of QROPS in the EEA asking them to confirm that they meet the conditions. If the scheme doesn’t respond or doesn’t meet the conditions they will cease to be a Qualifying Recognised Overseas Pension Scheme.

 

Update on digitisation of relief at source

 

The newsletter confirms that this service will not be operative until April 2028 at the earliest. HMRC state this will allow more time to deliver an ambitious programme of government reform.  HMRC will provide further updates in due course.

 

TPR blog: Working together to strengthen our defences against scams

(AF8, FA2, JO5, RO4)

 

The Pensions Regulator (TPR) has published a blog post entitled: “Working together to strengthen our defences against scams”. This outlines its latest efforts to combat pension scams and protect savers from fraudsters. The regulator, in collaboration with key partners, is intensifying its intelligence efforts and preventive measures to stay ahead of scammers.

 

Some of the key points of note include:

 

1. The Growing Threat of Pension Scams:

Pension fraud remains a significant concern, with scammers targeting individuals’ life savings. In 2023, £17.7 million was reported lost to pension fraud, with an average loss of nearly £47,000 per victim. However, the Financial Conduct Authority (FCA) estimates that fewer than one in five scam incidents are reported, underscoring the need for greater vigilance and action.

 

2. Strengthened Intelligence and Collaboration:

To enhance the fight against fraud, TPR has expanded its intelligence-sharing capabilities and partnerships. Key initiatives include:

 

• The Pension Scams Action Group (PSAG): A multi-agency collaboration between law enforcement, government, and the pensions industry to disrupt fraudulent schemes before they take hold.
• Closer ties with enforcement agencies: TPR has embedded intelligence experts within the City of London Police and the National Economic Crime Centre to improve intelligence-gathering and align strategies with national fraud prevention efforts.

 

3. Proactive Scam Prevention Efforts:

TPR has undertaken several initiatives aimed at educating the public and industry stakeholders, including:

 

• The ScamSmart Campaign: A multi-million-pound awareness campaign with the FCA, educating millions about pension scams.
• The Pension Scam Storyline in BBC’s EastEnders: A creative initiative to raise awareness about scam tactics.
• Industry Standards and the TPR Pledge: Encouraging pension schemes to adopt stronger fraud prevention measures.

 

4. Industry Responsibility and Reporting:

The pensions industry plays a crucial role in detecting and reporting scams. TPR urges schemes to:

• Report suspicious activity to Action Fraud to aid early intervention.
• Strengthen internal anti-fraud measures and awareness campaigns.
• Participate in intelligence-sharing initiatives to disrupt scam operations more effectively.

 

5. Future Plans and Continued Commitment:

TPR is continuously reviewing and enhancing its anti-fraud strategies. Future actions include:

• Further embedding intelligence experts within key organisations.
• Hosting a Fighting Pension Fraud webinar in March 2025, in collaboration with the City of London Police, to discuss emerging threats and strategies.
• Supporting the development of new tools and legislative measures to combat pension fraud.

 

Conclusion:

Pension scams are a persistent and evolving threat, but TPR remains committed to protecting savers. Through enhanced intelligence, stronger partnerships, and proactive awareness campaigns, TPR aims to create a robust defence against fraudsters. The regulator urges all stakeholders—pension schemes, employers, and savers—to stay vigilant, report suspicious activities, and participate in anti-fraud initiatives. Together, they can build a more secure and resilient pension system for the future.

 

 

ICAEW: Virgin Media pension ruling: sponsor entity and auditor considerations

(AF8, FA2, JO5, RO4. AF7)

 

The Institute of Chartered Accountants in England and Wales (ICAEW) has issued new guidance to address the implications of the significant July 2024 Court of Appeal ruling in the Virgin Media pension case, which upheld a June 2023 High Court decision. The ruling concerns section 37 of the Pension Schemes Act 1993, which required actuarial certification for benefit amendments in contracted-out pension schemes between April 1997 and April 2016.

 

The court determined that any amendments affecting members' section 9(2B) rights during this period are void unless written actuarial confirmation was obtained at the time. This creates significant challenges for trustees, sponsors and auditors, particularly given ongoing legal uncertainties and the possibility of further regulatory intervention.

 

The guidance outlines three main approaches trustees might consider:

1)      A wait-and-see approach - suitable where there's confidence in historical processes or where the cost of investigation outweighs potential benefits

2)      An information-gathering approach - collecting data without full detailed analysis

3)      Performing detailed analysis - though this may be premature given current uncertainties

 

For sponsor entities preparing financial statements under IFRS or FRS 102, three potential accounting treatments are identified:

 

• No recognition or disclosure (suitable only where the ruling clearly doesn't apply)
• Disclosure in pension notes without recognition (likely the most appropriate approach for most schemes currently)
• Remeasurement of defined benefit obligations (currently unlikely due to insufficient information)

 

The guidance suggests that most schemes will opt for disclosure rather than remeasurement, given the numerous uncertainties and ongoing legal developments. Any future remeasurement would likely require a prior year adjustment, as invalid amendments would have been void from inception.

For auditors, the guidance outlines three possible approaches to their reports:

• No impact (likely the most common scenario)
• Including an Emphasis of Matter paragraph (for cases where pension liabilities are highly significant)
• Issuing a qualified opinion (expected only in exceptional circumstances)

 

The document emphasises that qualification should only be considered where there are fundamental doubts about trustees' historical compliance with laws and duties, not merely due to missing documentation.

 

The guidance acknowledges that the ruling could lead to either increases or decreases in defined benefit obligations, depending on whether the potentially void amendments originally enhanced or reduced benefits. However, in cases where benefits might be reduced, trustees may choose to implement retrospective improvements rather than reduce member benefits.

 

Throughout the guidance, the ICAEW stresses the importance of proportionate responses based on individual scheme circumstances and emphasises the need for clear communication between trustees, sponsors and auditors. It also highlights the possibility of future regulatory intervention from the Department for Work and Pensions to address the uncertainties created by the ruling.

 

 

TPR: Market oversight: DC and master trust supervision

(AF8, FA2, JO5, RO4)

 

In a report entitled: Market oversight: DC and master trust supervision, The Pensions Regulator (TPR) has announced a significant evolution in its approach to supervising defined contribution (DC) schemes and master trusts, aiming to enhance member outcomes and ensure value for money in the pensions market. This shift follows a 12-month review and a 14-week pilot involving three large master trusts, which tested a new, risk-focused, expert-to-expert supervision model.

 

Some of the key findings and outcomes include:

 

1)        New Supervision Model:

 

·         TPR is moving towards a prudential-style regulation model, focusing on identifying and mitigating risks to savers and the wider market. This approach emphasises proactive risk management, real-time data analysis, and strategic decision-making.

·         DC schemes and master trusts will now be grouped into four segments based on their risk profiles:

§  Monoline master trusts (larger schemes with higher market risk)

§  Commercial master trusts (including those linked to insurance offerings)

§  Non-commercial master trusts and collective DC (CDC) schemes

§  Single and connected employer DC schemes

·         Each segment will have tailored levels of engagement, with monoline and commercial master trusts receiving dedicated multi-disciplinary teams of experts in financial analysis, business strategy, investment, and governance.

 

2)        Expert-to-Expert Engagement:

 

·         The new model fosters closer collaboration between TPR and the industry, with more face-to-face interactions and scheme-specific conversations. This approach aims to improve regulatory compliance and saver outcomes by addressing risks and challenges in real time.

·         The pilot demonstrated that targeted, expert-to-expert meetings led to more efficient problem-solving, clearer expectations, and better insights into both scheme-specific and sector-wide risks.

·         Feedback from participants was overwhelmingly positive, with schemes praising the pragmatic and constructive nature of the new approach.

 

3)        Reduced Regulatory Burden:

 

·         The new model is expected to reduce the frequency and volume of data requests, as requests will be more targeted and specific rather than process-driven. This will allow both TPR and schemes to allocate resources more effectively.

·         The pilot confirmed that the strategic approach could lead to fewer but more focused data requests, cutting the regulatory burden while maintaining robust oversight.

 

4)        Focus on Value for Money:

 

·         TPR’s primary goal is to ensure that all DC savers receive good value for money, with clear priorities around investments, data quality, and innovation at retirement.

·         The regulator aims to make master trusts the gold standard in pension provision, building on the success of the master trust authorisation framework introduced in 2019.

 

5)        Prudential Regulation:

 

·         TPR is shifting towards a prudential-style regulation model, which focuses not only on individual scheme risks but also on broader market and economic risks. This approach aims to anticipate potential threats to savers and the UK economy, while fostering competition and innovation in the sector.

 

Conclusion:

TPR’s new supervision model represents a significant step forward in the regulation of DC schemes and master trusts. By adopting a risk-focused, expert-to-expert approach, TPR aims to enhance member outcomes, reduce regulatory burdens, and ensure that the pensions market delivers real value for money. The success of the pilot and the positive feedback from industry participants suggest that this new approach will lead to more effective oversight and better outcomes for savers.

 

This evolution in regulation reflects TPR’s commitment to addressing the challenges of the next decade, ensuring that pensions not only encourage saving but also deliver secure and valuable retirement outcomes for all members.