EIM15409 - Non-approved schemes: persons chargeable and residence rules

Sections 386(6) and 394 ITEPA 2003

It was common for a non-approved scheme to provide benefits for people other than an employee. The payment of a lump sum or pension to the surviving spouse of an employee who dies in service would be a typical example.

For employer contributions to non-approved schemes, provision of benefits for any of the following was treated as made to the employee (Section 386(6) ITEPA 2003). So an employer's contributions to a scheme providing benefits for these people were also chargeable on the employee (see EIM15412):

• the employee's spouse or widow/widower and (from 5 December 2005) civil partner/surviving civil partner
• the employee's children
• dependants of the employee
• the personal representatives of the employee.

Where any benefit was paid out of a non-approved scheme:

• where the recipient is an individual, the benefit counts as employment income of that individual under Section 394(1) ITEPA 2003 (see EIM00512)
• where the recipient is not an individual (for example, a company or club) the “administrator” of the scheme is assessed to income tax (Section 687 IT(TOI)A 2005). See EIM15410 and EIM15402 respectively for definitions of “administrator” and “non-approved”.

The residence rules found in Chapters 4 and 5 Part 2 ITEPA 2003 (see EIM40001) do not apply to a charge under Section 394 ITEPA 2003. That is because such a charge is classified as “specific employment income” by Section 7(4) ITEPA 2003 and those Chapters are not applicable to such income (Section 6(3) ITEPA 2003). A charge arises where there is either a person or a source of income in the UK.

For the year of assessment, see EIM15411.