HMRC guidance on the tax fallout from the McCloud judgement
HMRC guidance on the tax fallout from the McCloud judgement
The McCloud judgement on a compensation remedy for changes made to the NHS pension scheme created a complex tax problem for HMRC, members and their advisers to resolve. HMRC has recently issued guidance on reporting the correction of pension growth for annual allowance tax charges to help sort out the tax adjustments needed.
If you were a member of the new scheme (the 2015 NHS Pension Scheme), before April 2022 and you were previously in a legacy scheme i.e., 1995 NHS Pension Scheme or 2008 NHS Pension Scheme you will be affected by the public service pensions remedy.
All benefits that you built up during the seven-year period from 1 April 2015 to 31 March 2022 in the new scheme form your ‘remedy period’. Your remedy period will be recalculated as if you were a member of your legacy scheme for the full remedy period. This means that your ‘pension input’ amount for tax purposes will change for any year that you were a member of the new scheme. This may result in a change in your annual allowance tax charge.
Members will receive a re-calculated statement of pension growth for annual allowance purposes. You will see a tax impact if you previously incurred an annual allowance tax charge for any of the tax years 2015/16 – 2021/22 and you were a member of the 2015 NHS Pension Scheme.
The exact timeframe for receiving your re-calculation is not yet known but is estimated to be available from October 2024.
When members finally receive their re-calculation of pension growth for annual allowance purposes, they must report final tax charges to HM Revenue & Customs (HMRC). All changes to tax charges as a result of the remedy period must be reported using the HMRC digital service and not via an adjustment to self-assessment tax returns.
If members have additional tax charges, they can either ask the scheme to pay the tax charge or pay the tax charge personally. There are associated deadlines with submission of scheme pays elections.
If the re-calculation of members pension growth shows a reduced figure, members will be due a refund if they had previously incurred a tax charge. If a member’s decreased tax charge is from 6 April 2019 and 5 April 2023 HMRC will issue each member a direct refund. If members used the scheme pays facility to pay the relevant annual allowance charge, the pension fund will contact HMRC for the refund.
If there is a decrease in the calculated pension growth figure resulting in a tax refund for the period 6 April 2015 to 5 April 2019, the scheme will contact members to arrange a refund. If the scheme pays facility was used during this period, the scheme will compensate you by adjusting your benefits.
The above rules only relate to reporting of tax charges in respect of the remedy period. If you require assistance with the reporting of tax charges for earlier years, or any other issue related to taxes on your pension, please contact Juliette Smith or Aimee Winterbone.