PFS What's new bulletin - June II

TAXATION AND TRUSTS

Taxpayer loses appeal against penalties, despite misunderstanding (AF1, RO3)

A tax case where a misunderstanding about self-assessment tax return filing led to HMRC penalties

In this case, TCO9525, Asim Hussain had submitted annual self-assessment tax returns for his property rental income for more than a decade until the 2025/16 tax year. At some point after that, he received a letter from HMRC informing him that he was no longer required to do so. The taxpayer misinterpreted this letter to mean that he did not need to submit self-assessment returns again whether or not he had a tax liability in a future year. He assumed, wrongly, that HMRC would use the pay as you earn (PAYE) mechanism to collect any tax he owed on future income. 

In November 2021, Mr Hussain received a further letter from HMRC, opening an inquiry into his tax affairs and requesting details of his rental income. Over the next two years he supplied the details requested, explaining the delays were due to having to care for a disabled family member. In February 2024, HMRC issued him tax assessments for the years 2016/17 to 2020/21, amounting to over £3,000. It also issued penalties of £758 for failure to notify his tax liability.

Mr Hussain accepted the tax assessments, but he appealed against the penalties to the First-tier Tribunal (FTT), citing the letter he had received years previously telling him he did not have to submit any more tax returns. The letter was lost, but HMRC agreed it was probably a computer-generated SA251 form letter, which states: 'based on the information you gave us, that was the last year that you needed to send us a return'.

However, the FTT did not think it was reasonable for Mr Hussain to assume that any future liability to tax would be deducted from his pay through PAYE without him completing a self-assessment tax return. Mr Hussain had been completing his self-assessment tax return for many years and therefore knew that this was how HMRC collected information on his property income. It was not objectively reasonable for him to assume that HMRC could obtain this information without him completing a self-assessment tax return. It noted that the SA251 form letter provided guidance on how to find out if he needed to complete his self-assessment tax return in future years and that it also includes wording stating that taxpayers should update their details online via their personal tax account if their circumstances have changed. The FTT did not think it was reasonable for Mr Hussain to simply not make any further enquiries either with HMRC, an accountant, the Citizens Advice Bureau or similar, about whether he needed to complete a self-assessment tax return in tax years when he had taxable income from the property.

HMRC had made reductions to the penalties on the grounds that the Mr Hussain's failure to notify was not deliberate and to recognise his level of co-operation during the enquiry. This resulted in a 75% reduction in the potential penalty that HMRC could have charged. The FTT said that it considered that this reduction was fair and reasonable on the facts of this case.

It rejected the appeal, deciding that Mr Hussain did not have a reasonable excuse. Accordingly, it confirmed the penalties.

Comment

This case highlights the importance of taxpayers understanding their compliance obligations as their circumstances and the law changes. There have been a couple of recent changes to who needs to file a self-assessment return. For tax year 2023/24, the self-assessment threshold for individuals taxed through PAYE only, changed from £100,000 to £150,000. From the tax year 2024/25, the threshold is being abolished altogether for employees, regardless of their level of earnings. The Government has also announced plans to remove more taxpayers from the self-assessment filing system in the future. All of this could lead a taxpayer to believe, potentially wrongly, that they are not required to complete a tax return. 

Taxpayers are responsible for identifying whether or not a tax return is required and when tax is due. Every person has a statutory obligation to notify HMRC if they have a liability to pay tax in a tax year and people should therefore check the requirements to file a tax return annually.

People may need to complete a tax return for the 2024/25 tax year and pay any tax owed if they:

·         are newly self-employed with a total income over £1,000;

·         are self-employed and earn below £1,000 and wish to pay Class 2 National Insurance contributions (NICs) voluntarily to protect their entitlement to State Pension and certain benefits;

·         have received any untaxed income over £2,500;

·         are renting out one or more properties;

·         claim Child Benefit and they or their partner have an income above £60,000;

·         are a partner in a business partnership;

·         have taxable income earned from savings and investments more than the £10,000 have dividend income of more than £10,000;

·         have capital gains tax to pay on assets that were sold for a profit above the capital gains threshold.

A full list of who needs to complete a tax return is available on GOV.UK.

Pensioners are required to pay income tax on any taxable income, including their pension income, above their personal allowance threshold. There are different ways to pay any tax owed, depending on the individual’s circumstances, including:

·         if they already complete a self-assessment tax return, they will need to report and pay via this route;

·         if they have a PAYE tax code, HMRC will automatically collect any tax through their tax code.

Alternatively, if a pensioner does not already pay tax via self-assessment or PAYE, HMRC will send them a Simple Assessment summary. The Simple Assessment will tell them how much income tax they need to pay and the deadline – usually by 31 January following the end of the tax year. HMRC produces the Simple Assessment from the information it holds along with information it receives from third parties such as bank and building societies. People do not need to do anything - there is no form to complete. More information about Simple Assessment is available on GOV.UK.

HMRC research with employers on Benefits in Kind and expenses (AF1, AF2, JO3, RO3)

The type and value of benefits offered is often in response to employment market trends, for example, employers ensuring that their benefits package is as (or more) attractive than their peers and competitors. However, external events, such as the COVID-19 pandemic, have also increased internal and external pressure on employers to review the adequacy of their healthcare and risk benefits, such as occupational sick pay, as well as their overall financial and mental support for their staff, such as for those who have had to shield at home.

From a taxation point of view, the assumption is that each benefit has a value and will therefore be subject to tax. In this case, the tax is based on the cost to the employer of providing them, or for cars, assets, loans and accommodation, the valuation that the employer places on them. The value of the benefit is added to the cash value of an employees’ salary and taxed accordingly at their marginal rate. Employers can offer Benefits in Kind through Salary Sacrifice. However, in April 2017 the advantages of salary sacrifice were withdrawn for most Benefits in Kind but remain for pensions, childcare, Ultra Low Emission Vehicles and the provision of cycles and cycle safety equipment.

Use of Benefits in Kind in employee remuneration is widespread. Previous research conducted with employees found that more than four-fifths (84%) of all employees were offered at least one non-taxable Benefit in Kind by their employer. Meanwhile, the total number of reported recipients of company car benefit was 720,000, which equates to a total taxable value of £4.62 billion. 

HMRC commissioned IFF Research to undertake this latest research, with the stated objective being to better understand the current and future use of Benefits in Kind and expenses, including understanding the incidence of employers offering a range of Benefits in Kind and expenses of interest to HMRC (this wasn’t exhaustive of all benefits and expenses that could be offered and reimbursed). The research aimed to answer the following questions:

·         what is the prevalence of employers offering Benefits in Kind and reimbursing expenses?

·         what Benefits in Kind are offered by employers?

·         what expenses are reimbursed by employers?

·         what are the motivations for offering Benefits in Kind and reimbursing expenses?

·         are there any challenges of offering Benefits in Kind and reimbursing expenses? If so, what are these?

·         what are employers’ future intentions of offering Benefits in Kind and reimbursing expenses?

IFF Research conducted a quantitative telephone survey consisting of 1,496 interviews with employers of varied business size and industry sector between 7 November 2022 and 20 January 2023. After the quantitative survey, 30 follow-up in-depth interviews were conducted with a range of employers that took part in the survey. Qualitative fieldwork took place between 13 January and 15 March 2023. 

Key findings

·         Prevalence of offering Benefits in Kind and reimbursing expenses. More than half of employers (59%) said they reimbursed any expenses to employees, and around a quarter (27%) said they offered any Benefits in Kind. Larger employers were much more likely to say they reimbursed expenses and offered any Benefits in Kind. Nearly all employers with 50 or more employees said they reimbursed expenses (90% of medium and 98% of large employers), and more than half said they also offered Benefits in Kind (64% of medium and 72% of large employers).

·         Benefits in Kind explored in the survey. Employers were asked which Benefits in Kind they offered their employees out of a range of benefits of interest to HMRC. The most common of these Benefits in Kind were workplace parking (13%), company cars or vehicles (12%) and the loan of a bicycle (5%). Medium and large employers were significantly more likely than employers overall to offer most of the Benefits in Kind explored in the survey. An asterisk (*) in the below table denotes a statistically significant difference from all employers:

Type of Benefit in Kind offered by employers	Proportion of all employers who said they offered the benefit (unweighted base; 1,496)	Proportion of medium and large employers who said they offered the benefit (unweighted base: 407)
Childcare vouchers	4%	23%*
Nursery or playscheme provision at the workplace	<1%	<1%
Nursery or playscheme provision off-site	<1%	0%
Loan of a bicycle, such as through a Cycle to Work Scheme	5%	23%*
Workplace parking for motor vehicles, motorbikes or bicycles	13%	39%*
Specific support for disabled people to travel between home and work, including adapted cars	1%	1%
Company car or other company vehicle	12%	29%*
Electric vehicle battery charging at workplace	4%	20%*
Medical treatment to help an employee return to work	4%	14%*
Medical treatment outside the UK, when an employee falls sick when abroad	1%	2%
Employee Assistance Programmes	4%	21%*
Welfare counselling not covered by an Employee Assistance Programme	2%	12%*
Employment costs relating to disabilities	1%	8%*
Outplacement counselling for redundant employees	2%	7%*
Employer provided accommodation	1%	4%*
Reimbursement of relocation costs	1%	5%*
Employer provided loans	2%	3%
Provision of pensions advice	3%	4%
Sporting or other recreational facilities on premises the organisation owns	1%	2%
Sporting or other recreational facilities on premises the organisation rents	<1%	1%
Retraining expenditure related to employees leaving their employment under a redundancy deal	1%	3%

The most common reasons employers gave for offering Benefits in Kind to their employees were that it helps retain staff (38%) and improves staff health and wellbeing (38%). Employee retention, the health and wellbeing of staff, staff satisfaction, and employee recruitment were the most common reasons employers gave for offering Benefits in Kind in the qualitative interviews. The hope was that, by improving health and wellbeing and staff satisfaction, this would result in better attendance and less staff sickness. Most employers could not think of any particular difficulties with providing the benefits they currently offer.

·         Salary sacrifice for Benefits in Kind. Most employers said they did not offer Benefits in Kind through salary sacrifice (90%), with fewer than one in ten offering it (8%). It was more prevalent among medium and large employers, with roughly a quarter offering Benefits in Kind through salary sacrifice (26%). Small employers were less likely to offer it at 5%.

Employers offering Benefits in Kind through salary sacrifice were asked what proportion of their employees in receipt of these benefits were basic rate, higher rate, and additional rate taxpayers. On average, these employers said that around half were basic rate taxpayers (51%), around one fifth were higher rate taxpayers (21%), and 4% were additional rate taxpayers. Half of employers offering Benefits in Kind through salary sacrifice did so to all staff, including hourly paid staff (50%). Just over two-fifths of employers (43%) offered it to all salaried staff. A minority of employers said they only offered Benefits in Kind through salary sacrifice to directors, or middle managers and above.

Employers offering Benefits in Kind through salary sacrifice reported that salary sacrifice was effective in incentivising employees to take up Benefits in Kind. Around two-thirds (67%) said it was very effective (31%) or fairly effective (36%), with only 3% of employers feeling it wasn’t effective at all. In the qualitative interviews, employers noted that the key advantage of offering Benefits in Kind through salary sacrifice was reducing the cost of offering the benefit for the employer, as they can save on National Insurance contributions. Employers also noted that the salary sacrifice arrangement also enables employees to reduce the amount of tax they pay, saving them money (compared to accessing the benefit in the open market).

Employers did not highlight many challenges of providing benefits through salary sacrifice, though some employers raised the issue regarding employees on minimum wage: whilst employers wanted to offer Benefits in Kind to these employees, they were unable to do so using salary sacrifice as this would reduce below the threshold according to HMRC rules.

·         Expenses. Employers were asked which expenses they reimbursed for their employees out of a range of taxable, non-taxable, and exempt expenses of interest to HMRC. The most common expenses that were reimbursed in the survey by employers were miscellaneous items purchased for the company on the company’s request (38%), other subsistence expenses, such as accommodation when staying overnight on business (33%) and refreshments when attending meetings outside of the office (28%). The survey results show that not all employers reimburse expenses. In the qualitative interviews, most employers who said they did not reimburse the expenses included in the below table explained that this was because these expenses were irrelevant to their line of work. In other words, their employees would not incur the expense in the first place:

Type of expenses reimbursed by employers	Proportion of employers who said they reimbursed the expense (unweighted base: 1,496)
Refreshments when attending meetings outside of the office	33%
Other subsistence expenses, such as accommodation when staying overnight on business	34%
Any other incidental employee expenses	23%
Passenger payments, for carrying passengers in their own car	5%
Professional fees, to be a member of a body which is required for the job	25%
Professional subscriptions, which are not compulsory, but relevant for the job	19%
Homeworking expenses	12%
Uniform washing	5%
Other PPE or clothing	19%
Tools	15%
Miscellaneous items purchased for the company on the company’s request (items not already covered in the expenses above)	40%

Similarly to the Benefits in Kind offered, medium and large employers were significantly more likely to fully reimburse the majority of the expenses explored in the survey, compared to employers overall. In the qualitative interviews, most employers stated that the main reason they reimburse their employees’ expenses was because it was simply the “right thing to do” if the cost was incurred due to the nature of the business, for example travelling to a client. Aside from this, the most common reasons employers gave for reimbursing employee expenses in the survey were that it improves staff satisfaction at work (45%) and that it helps retain staff (42%). Most employers could not think of any specific challenges or difficulties faced with reimbursing expenses to employees.

The research’s conclusions

Overall, employers were more than twice as likely to reimburse expenses as they were to offer any Benefit in Kind. medium and large employers were significantly more likely than small employers to offer both Benefits in Kind and expenses. Where Benefits in Kind were offered, they also offered a higher number on average. The most common Benefits in Kind explored in the survey that were offered by employers were workplace parking, company cars or vehicles and the loan of a bicycle.

The most common reasons employers gave for offering Benefits in Kind to their employees was that it helps retain staff and improves staff health and wellbeing. The Benefits in Kind felt to have most impact on recruitment and retention were cars and childcare.

Positively, most employers could not think of any particular challenges or difficulties with providing the benefits they currently offer or with reimbursing expenses to employees. Most did not have any plans to change the benefits on offer to their employees and planned to continue reimbursing the same expenses indefinitely.

The Benefits in Kind that were most commonly payrolled were childcare vouchers and the loan of a bicycle. Employers found the process of payrolling Benefits in Kind to be very straightforward.

It was uncommon for employers to offer Benefits in Kind through a salary sacrifice arrangement, although medium and large employers were more likely. Employees receiving benefits through salary sacrifice were most commonly basic rate taxpayers and salary sacrifice arrangements were typically offered to all staff. Employers found salary sacrifice to be effective in incentivising employees to take up Benefits in Kind and there were few challenges highlighted about providing benefits through salary sacrifice. Generally, employers were planning to offer salary sacrifice for Benefits in Kind indefinitely, with no plans to change in the future.

The research found that the COVID-19 pandemic had little impact on employers’ offering of Benefits in Kind and expenses. It was rare for employers to have changed the types of benefits or expenses offered to employees as a result of the increase in home working due to COVID-19.

You can read the full research findings here.

 

INVESTMENT PLANNING

NS&I premium bond rate change (AF4, FA7, LP2, RO2)

The latest NS&I interest rates. NS&I will cut the prize rate for Premium Bonds from 1 August.

NS&I has announced a 0.2% lower prize rate for premium bonds from 1 August. The odds of winning will remain at 1 in 22,000. 

The pattern of August’s prize distribution is detailed below along with July’s for comparison.  

	Jul-25	Aug-25
Odds of monthly win:	1:22,000	1:22,000
Prize rate	3.80%	3.60%
£1,000,000	0.000033%	0.000033%
£100,000	0.001322%	0.001248%
£50,000	0.002661%	0.002512%
£25,000	0.005306%	0.005024%
£10,000	0.013256%	0.012543%
£5,000	0.026530%	0.025070%
£1,000	0.278669%	0.263991%
£500	0.836008%	0.791972%
£100	31.024569%	28.075616%
£50	31.024569%	28.075616%
£25	36.787076%	42.746376%

Comment 

The new rate means that over 70% of prizes will be either £25 or £50.  

 

PENSIONS

 

Retirement income advice - good practice and areas for improvement (AF8, FA2, JO5, RO4)

Based on findings from its thematic review of retirement income advice, the FCA has published a new webpage setting out examples of good practice and potential areas for improvement for firms providing retirement income advice, Retirement income advice: good practice and areas for improvement. The FCA highlights three areas which it sees as fundamental to the provision of good outcomes for clients in decumulation: 

 

• the quality of firms’ information collection and record keeping,
• the appropriateness of client risk profiling, and
• the suitability of clients’ income withdrawals.

 

It says it found the following examples of good practice as well as areas where there is room for improvement:

 

• Examples of good practice. Firms collecting detailed information on all their client and partner’s assets and the expected income they would use to support themselves in retirement; detailed objectives collected, showing how client plans would develop throughout retirement; and one firm’s decumulation advice register recorded all new or additional solutions/withdrawals including attitude to risk, age, vulnerability, provider/platform mix, type of withdrawal solution, ceding scheme and details of any safe-guarded.
   
• Examples of areas for improvement. A firm not obtaining information about the client’s financial situation, including their assets, intended retirement date or their proposed expenditure in retirement; A firm not gathering necessary information, including the assets to be invested in, the potential charges and whether the client was able to accept the risks involved. 

 

The FCA notes that all firms involved have been given individual feedback and corrective actions were sought including the provision of potential redress where appropriate. All firms providing retirement income advice to clients in or nearing decumulation are encouraged to read the new webpage in conjunction with the FCA’s thematic review and its article on cashflow modelling and to take any relevant action. 

The FCA says that it plans to issue further articles on other key issues impacting the financial advice and wealth management sectors and to share these at interactive events across the country.

 

The McCloud remedy and extensions to LTA protection applications and scheme pays deadlines (AF8, FA2, JO5, RO4)

HRMC issued the latest edition of the public service pension scheme remedy newsletter on 20 June. 

The newsletter confirmed two useful extension of deadlines and clarified the payment of additional lump sum death payments for those subject to the remedy.

Lifetime allowance protection application extension

Members who have remediable service under the remedy will have an extended deadline to apply for fixed or individual protection 2016. The deadline is extended to 6 April 2027.  As a reminder the deadline for all other individuals was 5 April 2025 and so has now passed.  This may give some clients who have missed the deadline another opportunity to apply for the protections. 

Scheme pays elections

The newsletter also confirms that members who started to take benefits before 1 October 2023, will have until 5 July 2032 to amend their scheme pays notice relating to annual allowance charges arising from the remedy. Members who had not started to take their pension by that date will have until 5 July 2030.

Top-up payments of defined benefits lump sum death benefits

The newsletter also confirms that payments of additional defined benefits lump sum death benefits arising due to the remedy paid on or after 6 April 2024 will use up the member’s lump sum and death benefit allowance. The payment will not be subject to the lifetime allowance rules and test.

Where the original lump sum death benefit payment was made in relation to a member who died aged under 75 and within the ‘relevant 2-year period’, the top-up payment may still be free of income tax up to the member’s available lump sum and death benefit allowance.

 

 

HMRC's latest update for employers

(AF8, FA2, JO5, RO4)

HMRC latest update HMRC’s latest update covers a wide range of topics, and includes the following pensions items of interest:

·         lifetime allowance abolition — lump sum reporting

·         pensions for seasonal temporary staff

Lifetime allowance abolition — lump sum reporting  

Pension Commencement Excess Lump Sums   

For reporting Pension Commencement Excess Lump Sums (PCELS) for the 2025/26 tax year, HMRC says that providers will need to:  

·         report PCELS through Real Time Information (RTI);

·         set up a separate payroll record for PCELS to avoid issues with regular pension income reporting and tax records;

·         use ‘one-off’ pay frequency and the payment date as the leaving date;

·         provide a P45 to the customer for tax reclaim purposes;

·         use data field 219 for PCELS and include the taxable part in data field 173 —  detailed guidance can be found in paragraph 2.2.9 of the 2025/26 CWG2: further guide to PAYE and National Insurance contributions. 

For the 2024/25 tax year, HMRC says to follow the guidance in March 2023 lifetime allowance newsletter.  

Stand-Alone Lump Sums   

For reporting Stand-Alone Lump Sums (SALS) for the 2025/26 tax year, HMRC says that providers will need to: 

·         report SALS through RTI only if there is an excess over the permitted maximum;

·         set up a separate payroll record for taxable SALS, use ‘one-off’ pay frequency, and the payment date as the leaving date;

·         provide a P45 to the customer for tax reclaim purposes;

·         use data field 220 for SALS and include taxable and non-taxable elements in fields 173 and 174 respectively — detailed guidance can be found in paragraph 2.2.10 of the 2025/26 CWG2: further guide to PAYE and National Insurance contributions.  

For the 2024/25 tax year, HMRC says to follow the guidance in Pension schemes newsletter 151.    

There is more information in HMRC’s Lifetime allowance abolition — lump sum reporting article in the Pension schemes newsletter 167 issued in March 2025.  

HMRC says that it is aware that not all lump sums are being reported in this way and have been incorrectly reported on a regularly paid pension source. Pension schemes newsletter 170 includes an article to cover guidance on the process to follow to correct an individual’s tax record. 

Pensions for seasonal temporary staff  

HMRC has warned that an employer taking on extra staff over the summer must check if these workers are eligible for automatic enrolment into a workplace pension.      

Employers must individually assess any seasonal or temporary staff every time they pay them. This includes staff with variable hours and pay, whether they are employed for a few days or longer.    

Employers who fail to comply with their workplace pensions’ duties may receive a warning notice with a deadline to comply. Those who continue to fail, risk a fine.     

HMRC says that if employers have staff who they know will be working for them, for less than three months, they can use postponement to delay assessing those employees. This pauses the duty to assess those staff until the end of the three-month postponement period.     

Further information on postponement and employing seasonal or temporary staff including who you need to enrol is available on The Pensions Regulator website.