Tax revenue lost due to pension contribution exemptions (FOI)

​Request

A

How much income tax revenue is lost each year due to exemptions for employee pension contributions?

B

How much of that lost revenue is from individuals with a taxable income over £100,000?

C

What measures are in place to discourage employees / employers shifting employee pension contributions to employer pension contributions in order to reduce their income tax contribution?

D

Does the income tax department collect information on employer pension contributions?

Response

A

Tax relief totalling approximately £8m was granted to taxpayers in respect of employee pension contributions in the year of assessment 2016.

B

Approximately £3m of the total relief was granted to taxpayers with a taxable income greater than £100,000.

Notes on Parts A and B: the figures have been calculated by reference to taxpayers and not by individual. A Personal Taxpayer is an individual / married couple / civil partnership that pays personal income tax, based on their own liability, in Jersey, for the particular year. A “Personal Taxpayer” whose liability is less than £50 for a particular is year is counted as a “Personal Non-Taxpayer” and is excluded from this analysis.

Personal Taxpayers include:

• Single individuals (counted as one personal taxpayer)

• Married couples / civil partnerships (counted as one personal taxpayer as they do not have separate tax liabilities).

• Married couples / civil partners that have elected for separate assessment (counted as two personal taxpayers as they have separate tax liabilities).

C

There is nothing within the Income Tax (Jersey) Law 1961 (the Income Tax Law) that prevents an employer making payments into an employee’s approved Jersey pension scheme. If the arrangement is put in place through a “salary sacrifice” arrangement then there are certain conditions that must apply for the Comptroller to deem the arrangement effective. See published concession P15 at the following link:

Concession and practice: Personal tax 11 to 20

The payment by the employer into the employee’s pension scheme will be a benefit in kind. However, the benefit is exempt to tax in accordance with Schedule 2 to the Income Tax Law.

A limiting ruling exists in Schedule 2 which applies where an employee owns, or is deemed to own, more than 20% of the employing company making the contributions or if the employee is connected to a person that owns, or is deemed to own, more than 20% of the employing company. In such cases the exemption only extends to contributions that do not exceed 25% of the employee’s “relevant earnings” from the company. Relevant earnings are defined in Article 130C of the Income Tax Law.

D

Information is collected by paper returns and / or accounts as follows:-

a) Jersey Occupational Pension Schemes (Article 131): The administrators are required to report the total employer contributions paid in a year.

b) Jersey Self-Administered Retirement Annuity Contracts (Article 131B): It is a requirement that the annual accounts identify employer contributions made in the year.

c) Jersey Insurance based Retirement Annuity Contracts (Article 131B): There are currently no reporting requirements.

d) Jersey Retirement Trust Schemes (Article 131CA): It is a requirement that the scheme manager reports annually details of employer’s contributions to the scheme in the year, on a member by member basis.

Note: The information collected at a), b) and d) above is not specifically recorded on Taxes Office computer systems. It could not therefore be easily extracted.