RPSM04100040 - Technical Pages: Taxation: Overview: Authorised and unauthorised payments

Authorised and unauthorised payments

Payments made by a registered pension scheme will be either

• an authorised payment, or
• an unauthorised payment.

Any application to HMRC for a pension scheme to be a registered pension scheme on or after 6 April 2006 must be accompanied by a declaration by the scheme administrator that the instruments or agreements by which it is constituted do not entitle any person to unauthorised payments [s 153(2)].

Authorised payments

Authorised payments are defined in Part 4 of Finance Act 2004. They fall into two categories

• authorised member payments, and
• authorised employer payments.

Most authorised payments are taxable, although some authorised payments may be paid tax free. Information on authorised payments can be found at RPSM04101000 and RPSM04102000.

Unauthorised payments

Any payment that does not come within the definition of an authorised payment is an unauthorised payment. Again, payments are split into two categories

• unauthorised member payments, and
• unauthorised employer payments.

Unauthorised payments trigger an income tax charge at a rate of 40%. A further income tax charge of 15% - the unauthorised payments surcharge - will be due if the amount of unauthorised payments go above a set limit. The person liable to the tax charge(s) is the member (for unauthorised member payments) or employer (for unauthorised employer payments). Where an unauthorised member payment is made after the member’s death, the recipient of the payment is liable to the tax charge or charges.

The scheme administrator is also liable to a scheme sanction tax charge of up to 40% in respect of most unauthorised payments.

Further information on unauthorised payments can be found at RPSM04104000.