interest on taxation of pension arrears EIM74101

kaupthingedgy

I have requested that HMRC apply the statutory accruals basis (as per HMRC manual EIM74101 / SAM121160) to a large lump sum that I received last year that represents pension arrears dating back over the past 4 years. HMRC are saying that I must pay interest on the unpaid tax (dating back as far as 4 years) which effective nullifies the benefit of applying the accruals basis to my pension arrears.
I would be very grateful if someone can clarify whether HMRC can legally require that interest is paid in such cases.

kaupthingedgy

hi Jimmo, Thanks for attempting to sort this out for me. I was also baffled by the process described in the SAM notes. I have made SA returns for all relevant years (2004/5 – 2008/9) although these obviously did not included the arrears since the arrears were only awarded and paid in 2008. I have never accumulated any debt to HMRC in previous years. I fail to see how interest can accrue retrospectively when then was no liability to pay tax on the arrears until they were actually paid by my pension provider. I would appreciate any further thoughts on this.

fengirl_2

You have effectively created the arrears by telling HMRC that you have now received income relating to past years. It's no different to HMRC finding out someone has been moonlighting for years.

kaupthingedgy

hi Fengirl, I am not sure you are correct in drawing an analogy with earnings from employment.
Pension arrears are an exception and are treated differently from earnings arrears. As I understand it the statutory accruals basis permits tax liability on pension arrears to be spread over earlier years but the tax only becomes due at the date on which the calculation is made . Therefore surely interest on the tax cannot be recovered.
Again I would welcome any further opinions.

kaupthingedgy

thank you Jimmo for another very helpful posting.

It has been brought to my attention that under SAM20050 there are the following notes:

"3. The relevant due date for Section 86 interest purposes will be the statutory dates for the year of assessment. However, see Note 4 below
4. Any available credit from the PAYE tax deducted in the year when the pension was received should be transferred to OAS to be allocated back to the SA record with an effective date of payment (EDP) equal to the relevant dates "

Since at the end of 2008/09 (the year in which i received my pension arreras) my PAYE tax account was in credit by a large amount does that mean that this transfers to the SA accounts such that no interest is chargeable on the tax due from the earlier years?