Retrospective changes before Royal Assent

Practical effects

We have been asked whether the Commissioners’ powers of collection and management could be exercised so as to allow schemes to effectively bring forward the effect of new legislation in particular the changes to the Benefit Crystallisation Event 3 (BCE3) rules where draft legislation was published at the Pre Budget Report 07 (PBR07), changes to additional lump sum calculation (i.e. that , in para 34 of schedule 36 of Finance Act 2004, there does not have to be relevant benefit accrual for ALSA to be added) and taxable property announced at PBR07.

In view of the announcements at PBR07 that the amendments the Government intends to bring forward for these measures are to have retrospective effect we can confirm that where scheme administrators act in accordance with the announcements or draft legislation as appropriate neither they nor members will be subject to HMRC sanctions for failing to operate in accordance with the existing legislation.

Please note that 'sanctions' means penalties, so for example the penalties for late notification of a BCE or late payment of a tax due. Whether or not taxes such as LTA charge or taxes associated with unauthorised payments are due will depend on the legislation ultimately in force.

Example 1

A scheme identifies that a pension increase will be a BCE3 in December 2007 but would not be a BCE3 had the draft legislation been in place. Under current legislation, the scheme administrator would be due to give a notification to the member under the Provision of Information Regulations by March 2008, and potentially pay HMRC an LTA charge with an AFT return in mid April. Had the new legislation been in force neither of these actions would be due. Under the easement described above, penalties will not arise if this March and April action is not taken.

Example 2

As per example 1 but suppose legislation drafting changes before finalisation, such that an event expected not to be a BCE3 actually is one under the final version of the law. Again no sanction will be charged on the scheme or member (nor in the rare case of knock on effects for another subsequent BCE), but the Provision of Information requirements and the LTA payment will be expected to be managed through quickly once the legislation is finalised.

Example 3

A scheme identifies that a pension increase will be a BCE3 in December 2007; and that under the draft legislation it would still be a BCE3 but of a lower amount. The scheme administrator must proceed with the notification and potentially the LTA charge in the normal timeframe - but can choose to reflect the amount arising from the draft legislation if they wish. If the figure they reflect later proves incorrect, they must make due corrections but no penalties will be applied for this adjustment effectively being late.