Source · Select Committees · Public Accounts Committee
Recommendation 21
21
Accepted
Lump sum back payments for Home Responsibilities Protection may incur tax liabilities for claimants.
Recommendation
We asked HMRC to confirm whether pensioners receiving lump sum back payments would be liable for a tax charge and whether it would take a sympathetic approach to handling any issues. HMRC confirmed that the tax charge could apply. It told us that “Generally, we will be as generous as we can be”, but that discussions were still ongoing within HMRC to understand the level of discretion that can be applied.45 Integrity of the National Insurance records
Government Response Summary
The government agrees to the recommendation and states DWP and HMRC are working together on the correction exercise, which began in Autumn 2023, and clarifies specific rules for how income tax on arrears payments will be calculated and collected.
Government Response
Accepted
HM Government
Accepted
4a. PAC recommendation: DWP should work with HMRC within the next six months to set out a clear plan and timetable for correcting underpayments of State Pension relating to Home Responsibilities Protection and provide clarity on how any tax issues will be dealt with. 4.1 The government agrees with the Committee’s recommendation. Target implementation date: Summer 2024 4.2 The department provided details of the scope of the exercise and plans to address outstanding work in its 2022-23 Annual Report and Accounts. The 2022-23 Annual Report and Accounts also sets out that there is a degree of uncertainty with the number of people affected and the total amount of pension arrears. The correction exercise began in Autumn 2023. The department will continue to refine its plans and timetable alongside HM Revenue & Customs (HMRC) as the exercise progresses. The department will provide updated details of its plans in its 2023-24 Annual Report and Accounts. 4.3 Income tax will be calculated on the arrears payments of State Pension for the tax year in which the customer was entitled to receive the State Pension, not in the year in which the arrears were paid. HMRC will only collect tax for the year that arrears are paid and the preceding four years. HMRC will not collect income tax on any arrears payments where the individual is deceased, and payment was made after the date of death. HMRC will not raise historical interest charges on the tax due from Self-Assessment customers.