Some small private pensions paid by employer pension schemes or insurance companies have not been properly taxed under Pay as You Earn (PAYE). HMRC have decided that these untaxed pensions should be taxed from 2008-09.

All pensions, however large or small, should be paid under Pay As You Earn (PAYE). The vast majority of pensions are already paid in this way. Some pensions are still being paid under old arrangements which were agreed between pension providers and the Inland Revenue. This results in a number of pensions being paid tax-free, even when some tax should have been paid. It is likely that affected pensioners are not aware of the arrangements, or even that they should be paying some tax.

HMRC have now told providers that the old arrangements have to end by bringing any untaxed pensions into tax from the current tax year (2008-09). HMRC will not seek tax which should have been paid on a pension before April 2008 provided deliberate tax default is not involved.

HMRC will contact those individuals affected by this change. For further information please see http://www.hmrc.gov.uk/pensionschemes/taxation-small-pensions.htm.