HMRC Faces Scrutiny Over Higher-Rate Pension Tax Relief Claims

A taxpayer's difficulty in securing higher-rate pension tax relief from HM Revenue and Customs (HMRC) has brought to light potential systemic problems within the tax authority's processes, according to a recent report.

The individual, who had been monitoring their claim through the HMRC app, observed it progress through stages of 'received,' 'in progress,' and 'done' without receiving payment or any communication.

When contacting HMRC, the taxpayer was informed of an error and that the claim was being escalated to a technical team, only for the status to revert to 'done' without resolution. Similar accounts from others suggest this is not an isolated incident.

As background, the issue pertains to individuals who contribute to personal pensions or other schemes using the 'Relief at Source' method. Under this system, contributions are made from after-tax income, with HMRC adding basic-rate tax relief directly to the pension pot. For basic-rate taxpayers, this typically results in a £100 gross contribution from an £80 after-tax payment, with HMRC adding £20.

However, higher-rate taxpayers are entitled to 40% relief on their contributions. If they contribute £80 after tax, they are due an additional £20 beyond the basic rate relief already applied. This additional relief must be actively claimed.

There are two primary methods for higher-rate taxpayers to claim this extra relief. The first is to declare the gross pension contribution on their self-assessment tax return at the end of the tax year. The second is to complete and submit a form to HMRC or write to them directly. Successful claims can lead to an adjustment in the taxpayer's code, resulting in a rebate for the current year.

In the reported case, the taxpayer's claim was apparently rejected because they were due to file a tax return, and HMRC expected the claim to be made through that process. However, this requirement was not communicated to the taxpayer, leading to the ongoing issue.

An HMRC spokesperson stated that the reader was informed they should claim pension tax relief through their tax return as they are in Self Assessment. HMRC has since apologized to the individual, offered a £50 compensation for the inconvenience, and agreed to process the claim using the information already provided.

Experts emphasize that claiming this additional relief is financially significant. For example, an individual contributing a net £4,000 to a pension can be eligible for an extra £1,000 in tax relief if they are a higher-rate taxpayer, provided they claim it.

For individuals facing similar difficulties with HMRC and unable to resolve their issues through standard channels, the recommended escalation route is to contact their local Member of Parliament (MP). Raising such systemic problems with MPs can help apply pressure on ministers to improve the systems for savers.