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My PFS Technical news - 06/02/2018


Personal Finance Society news update 18 - 31 January 2018, including information on taxation & trusts, pensions and investment planning.

Taxation and trusts

Investments planning



Online self-assessment deadline – can you avoid a late filing penalty?

(AF1, RO3)

The online self-assessment deadline was 31st January. How many individuals failed to file? And, even if they do, will they automatically face a late filing penalty? Despite an interesting recent judgement, in most cases individuals are still likely to face a penalty.

It has been reported in the press that a judge has warned HMRC that automatically fining people for filing their tax returns late may not be legal. 

Last year there were around 840,000 individuals who missed the online self-assessment filing deadline and as a result were automatically fined. However, following a recent judgement it is likely that HMRC will face a flood of appeals against the late filing penalty.

The case in question was that of Khan Properties, which was fined £100 for filing a late company return but won the case in the tax tribunal after it was ruled that a tax official rather than a computer should have made the assessment for the fine.  

Judge Richard Thomas said: "In my view the for a flesh and blood human being who is an officer of HMRC to make the assessment that is to decide to impose the penalty and give instructions which may be executed by a computer."

HMRC has decided not to appeal the decision. 

Judge Thomas also ruled that the firm had a reasonable excuse for late filing.

A HMRC spokesperson denied that the case would make any difference to individuals submitting their tax returns this year.

He said: "This case was about whether the company had a reasonable excuse for filing late. This type of penalty is applied to encourage companies to comply with their obligations, to act as a sanction for those who don’t and to reassure the compliant majority that they will not be disadvantaged by those who don’t play by the rules. Penalties issued by HMRC to those who file late are due and payable. Any taxpayer with a reasonable excuse for filing late should get in touch with us."

He added other judges had taken the opposite view to Judge Richard Thomas on whether computers were capable of issuing fines.

So, with that in mind unless an individual has a reasonable excuse if they haven’t already done so they should act promptly and file online.

Personal savings allowance- updated guidance

(AF1, RO3)

HMRC has recently updated its guidance on the personal savings allowance which applies to savings income or interest. The allowance is £1,000 for basic rate taxpayers and £500 for higher rate taxpayers.

The specific part of the guidance which has been updated relates to information on sole bank accounts, joint account holder, and customers not in self-assessment.

For sole bank account holders, not in self-assessment, HMRC will normally collect the tax by changing the individual’s tax code. Banks and building societies will give HMRC the information they need to do this.

If the individual is a joint bank account holder, not in self-assessment, then they must contact HMRC and report the savings income or interest as appropriate.

Those who complete a self-assessment tax return should carry on doing this as normal.

Administration of the Scottish rate of income tax 2016/17

(AF1, RO3)

Scottish income tax continues to be administered and collected by HMRC as part of the UK tax system with the Scottish government paying the administration costs incurred by HMRC.

The National Audit Office has published a report on ‘The administration of the Scottish Rate of Income Tax 2016/17.’ The report highlights that maintaining accurate address records of the 2.6m Scottish taxpayers remains the biggest risk facing HMRC in ensuring that Scottish income tax is assessed and collected properly.

It would appear that HMRC has rectified issues that led to it not identifying 420,000 people as potential Scottish taxpayers in 2015, but maintaining accurate address records of Scottish taxpayers remains HMRC's biggest challenge. Neither taxpayers nor employers are legally required to tell HMRC of changes of address and around 80,000 people in the UK move into or out of Scotland each year. 

For the 2016/17 tax year, the Scottish Parliament decided to effectively match the income tax rates in Scotland to those in the rest of the UK. HMRC estimates it will collect £4.6 billion attributable to the Scottish rate of income tax for 2016/17. The actual amount collected will not be known until July 2018.

For 2017/18, income tax rules in Scotland differ from the rest of the UK for the first time. Scottish taxpayers pay the higher rate of tax (40%) when they earn £43,000 – as opposed to £45,000 in the rest of the UK.  The Scottish government has announced income tax changes from 2018/19 that will see higher earners pay more tax than elsewhere in the UK and lower earners pay less. 

Maintaining accurate records will be vital, especially given that Scottish high earners will pay more tax than others in the UK, otherwise HMRC could ‘lose out’ and not collect the correct amount of tax that is due.

Chargeable events gains and student loans

(AF1, RO3)

We recently came across the interesting question of whether a client with an outstanding student loan would be required to repay part of the loan if they had incurred a chargeable event gain on an investment bond.

As a general rule, student loan repayments are based on any individual’s income for the tax year. There are two types of plan available and the individual has to make loan repayments of 9% of their income over the minimum amount of:

  • £17,775 for Plan 1
  • £21,000 for Plan 2

In addition, from the date of the first payment interest is also payable and depends on which plan the individual has selected.

More details on student loans can be found on the HMRC website here

However, according to the student loans company, where an individual has savings income of more than £2,000 a year, they may have to make additional student loan repayments.

Savings income includes interest on stocks, shares or savings. As we know, chargeable event gains are treated as savings income and taxed as such.

The student loan company states:

‘HM Revenue & Customs will advise you if you need to make any payments directly to them in respect of student loans once they have assessed any self-assessment tax return you submit to them.’

Note the individual has to declare any chargeable event gain via their self-assessment return, regardless of whether or not there is any liability to income tax on the gain.

While there is no certainty as to whether or not HMRC will definitely ask for a repayment, it is helpful for individuals to be aware that they could be required to repay some of their student loan in these circumstances. Of course, in some cases individuals may prefer to repay part/all of the student loan as it will save them having to pay interest on the loan repayments


PRIIP problems

(AF4, FA7, LP2, RO2)
New regulations covering of PRIIPs (Packaged Retail and Insurance-based Investment Products) came into force on 1 January. The definition of PRIIPs covers most fund and investment-related products marketed to retail investors. That includes UCITS funds, but there are transitional rules which mean the full impact of PRIIPS will not hit the UCITS sector until the end of 2019.

Under the PRIIPS regulations, which are separate from MiFID II, potential investors must be supplied with a new Key Information Document (KID). This is a different beast from the familiar KIID (Key Investor Information Document) required for UCITS funds. For example, the old KIID has past performance data, the new KIID does not. 

One issue that has emerged with the new KID is the requirement to produce returns based on four performance scenarios; stress, unfavourable, moderate and favourable. These are calculated using performance data for the last five years, which also provides the basis for risk ranking, and the recommended holding period.

The use of the past five years numbers has thrown up some unusually optimistic performance figures. This is hardly surprising given the relative calm in the markets since the start of 2013. For example, a look at the FTSE 100 graph over that time frame reveals the market has spent almost the entire the half decade within a band of 1,000 points either side of 6,700. 

There has been a growing outcry from investment managers that the PRIIP KID performance scenarios could be lulling investors into a false sense of security, something that was warned about (and ignored) some while ago. Last week the FCA took the unusual step of making a statement about the impact of the new regulations. The last two paragraphs are the most telling, if not especially helpful to product providers and advisers:

 “Where a PRIIP manufacturer is concerned that performance scenarios in their KID are too optimistic, such that they may mislead investors, we are comfortable with them providing explanatory materials to put the calculation in context and to set out their concerns for investors to consider.

Where firms selling or advising on PRIIPs have concerns that the performance scenarios in a particular KID may mislead their clients, they should consider how to address this, for example by providing additional explanation as part of their communications with clients.”

In theory the new KID is a good idea, as it will ultimately facilitate comparison across the many different products offered to the retail investor. However, somewhere in its design the regulatory draftsmen have forgotten the wisdom of those words about past performance not being a reliable guide to the future.

Government borrowing lower than expected again in December

(AF4, FA7, LP2, RO2)

The government borrowing figures for December have just been released, giving us a view of the UK’s finances three quarters of the way through the current financial year and just ahead of the traditionally bumper inflow month of January. The picture that emerges is better than suggested by the OBR’s projections issued two months ago, alongside the Autumn Budget.  

The statistics for the month of December alone revealed a deficit of £2.6bn against £5.1bn for 2016. That £2.6bn figure marked the seventh month in 2017/18 that borrowing was below the 2016/17 level. It was also the lowest borrowing for December since 2000.  

For the first nine months of 2017/18 Public Sector Net Borrowing (PSNB) amounted to £50.0bn, down £6.6bn on 2016/17, and the lowest year-to-date sum at this stage since 2007. Income and capital gains tax receipts were up 5.2% over December 2016, VAT payments up 4.9% and NIC inflows up 2.8%. Somewhat ironically given the current state of Brexit negotiations, a significant reason for the deficit drop relative to last year was a £1.2bn fall in UK transfers to EU institutions. 

On the expenditure side, government interest payments amounted to £3.7bn, 15.2% higher than a year ago, although overall expenditure was £0.3bn (0.6%) less than in December 2016. The OBR attributes the interest cost increase to “the profile of RPI inflation (which continues to raise accrued interest on index-linked gilts)”.

As we (and the OBR) have mentioned in previous months, extrapolating the year-to-date figures is dangerous, given the uncertainties surrounding January’s self assessment income. What we can say at this stage is that to meet the Autumn Budget projection of a £49.9bn deficit for 2017/18, then next three months will need to provide an overall surplus of £0.1bn. In 2016/17, that final trio produced a net surplus of over £10bn, but this was a figure distorted by 2015/16 dividend payments accelerated ahead of the new dividend tax regime introduced in 2016/17.

 These numbers will give some comfort to Mr Hammond, but much still hangs on next month’s crucial self assessment inflow.



Pension scammers ordered to repay £13.7m they took from victims

(AF3, FA2, JO5, RO4, RO)

A press release from TPR has announced that four people who ran a series of scam pension schemes have been ordered to pay back £13.7 million they took from their victims. 

David Austin, Susan Dalton, Alan Barratt and Julian Hanson squandered the money after 245 members of the public were persuaded via cold-calling and similar techniques to transfer their pension savings into one of 11 scam schemes operated by Friendly Pensions Limited (FPL).

Victims were told that if they transferred their pension pots to the schemes they would receive a tax-free payment commonly described as a “commission rebate” from investments made by the pension scheme – a form of pension scam.

The restitution order came about following TPR’s request to the High Court to order the defendants to repay the funds they dishonestly misused or misappropriated from the pension schemes – the first time such an order has been obtained. The High Court ruled the scammers should repay millions of pounds they took from the schemes over a two-year period.

Dalriada, the independent trustee appointed by TPR to take over the running of the schemes, will now be able to seek the confiscation of the scammers’ assets for the benefit of their victims.

Pension freedoms statistics: £15.7 bn from April

HMRC have released figures that show pension savers have cashed in £15.7 billion from their pension pots since pension freedoms were introduced in April 2015.

Over 3.2 million taxable payments have been made using pension freedoms, with 198,000 people accessing £1.5 billion flexibly from their pension pots over the last 3 months, according to published HMRC figures.  

There has been some discussion on the reason for the reduction of the average payment per individual in the last quarter but because providers don’t record the reason for the payments, it will all be speculation. It does appear though that the number of individuals accessing payments may have stabilized around the 200,000 mark each quarter but that could also just be coincidence.

and quarter

Number of payments (1)

Number of individuals (1)

Total value of payments (2,3)

2015 Q2




2015 Q3




2015 Q4




2016 Q1




2016 Q2




2016 Q3




2016 Q4




2017 Q1




2017 Q2




2017 Q3




2017 Q4




Notes to the table

  1. i) The numbers published for 2015-16 are not comprehensive as to manage the burden on industry reporting was optional for 2015-16 but compulsory from April 2016. The increase in reported payments seen in 2016 Q2 is expected to partly result from this. 
  1. ii) The data underpinning these figures comes from Real Time Information (RTI) reports submitted to HMRC. 


  1. Figures are rounded to the nearest 1,000. 
  1. Figures are rounded to the nearest £10 million.
  1. Includes taxable payments only.
  1. The number of individuals for the year totals are less than the sum of the number of individuals from each quarter as some have taken payments in multiple quarters.

5. Quarterly figures may not sum to total due to rounding

(AF3, FA2, JO5, RO4, RO8)

Bridging pensions allow individuals who retire before reaching State Pension age to be paid a higher rate of pension initially. The bridging pension then reduces when the individual begins to receive their State Pension or reaches an age specified in their pension scheme rules.

Between 31 August and 1 October 2017 the government ran a consultation which sought views on its preferred approach to address the PPF bridging pensions anomaly by actuarially converting the bridging pension into a flat-rate lifetime equivalent amount (known as smoothing).The vast majority of those who responded to the consultation agreed that the government should legislate to correct the PPF bridging pension anomaly. However, a significant proportion of respondents expressed a preference for the alternative approach set out in the consultation, one based on the rules of the original scheme. After careful consideration of the responses, the government has decided to address the PPF bridging pension anomaly by more closely aligning with the approach that schemes would have taken.

So a further technical consultation has been published seeking to establish whether the new draft regulations achieve the policy intent.

The changes to PPF compensation rules will come into effect in February 2018, subject to Parliamentary procedures.

The draft Pension Protection Fund (Compensation) (Amendment) Regulations 2017 would allow the Pension Protection Fund (PPF) to take account of bridging pensions by smoothing the amount of PPF compensation over the individual’s lifetime.

The consultation seeks views on:

  • the implications of the government’s preferred option to allow the PPF to take account of bridging pensions by smoothing the amount of PPF compensation over the individual’s lifetime
  • whether the draft regulations achieve their intended purpose

The consultation closed on 3rd December 2017.

The cost of tax relief

(AF3, FA2, JO5, RO4, RO8)

Last October HMRC updated its statistics on tax relief costs for pension arrangements, incorporating provisional figures for 2015/16, the latest reported tax year. At the time we commented that the data was inevitably dated because of tax return timing and hard to compare with previous years because of the roll out of auto enrolment.

HMRC have now published revised estimates for the 2017/18 cost of pensions tax reliefs as part of its annual updating of the estimated costs of the principal tax reliefs. These are not directly comparable with the historic data figures because in arriving at the cost of income tax relief, HMRC make a deduction equal to the amount of tax received from pensions in payment. Nevertheless, the numbers tell their own story:

Tax Year






Income Tax Cost






Employer NIC Cost






Total Cost







As we head towards the Spring Statement, that near £41bn figure may weigh on the Chancellor’s mind.

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