PSI2.3.21 - Taxation Background: CHAPTER I PART XIV ICTA 88 - Summary of Sections 592-612 and schedule 29

(This archived guidance relates to HMRC discretionary practice before the 6th April 2006. For current guidance on Registered Pension Schemes see the Registered Pension Schemes Manual)

Section 592 sets out the tax reliefs and exemptions available to an approved scheme established under irrevocable trusts or subject to a direction by the Board (see Part 1 Section 4). These reliefs and exemptions are covered in Part 4 - employees' contributions; Part 5 - employers’ contributions; Part 17 - scheme investments.

Section 593 lays down the conditions under which relief given to employees in respect of their contributions(allowed under section 592(7) ICTA 88 will be dealt with.

Section 594 is concerned with statutory schemes established under public general Acts. These schemes are dealt with by Public Sector Section and are not relevant to General Sections.

Section 595 imposes an income tax charge on an employee based on the contributions paid to a pension scheme on the employee's behalf by the employer.

Section 596 exempts members of approved schemes, statutory schemes and certain schemes established by foreign governments from the tax charge imposed by section 595.

Sections 596A and B apply income tax charges to benefits from non-approved top-up schemes (see PSI1.2.3).

Section 597 taxes pension payable from approved schemes or schemes being considered for approval.

Section 598 charges to tax the repayment of employees' contributions.

Section 599 charges to tax the commutation of an entire pension in special circumstances.

Section 599A charges to tax the refund of surplus additional voluntary contributions.

Section 600 charges to tax any unauthorised payments to or for employees.

Section 601(5) deals with refunds which are treated as trading receipts or charged under Case VI of Schedule D usually those relating to small refunds of premiums paid in error.

Section 602(1) contains provisions to make regulations for dealing with surpluses.

Section 602(1)(a) and (b) provides for the tax at 35% to be chargeable under Case VI of Schedule D for the year of assessment in which the payment is made or in the case of a corporate employer to corporation tax for the accounting period in which the payment is made.

Section 602(2-5) sets out the various provisions the Board may make relating to the 35% tax charge.

Section 603 brings Schedule 22 (reduction of surpluses) into effect.

Section 601-603 and Schedule 22 ensure that:

(i) exempt approved schemes do not carry more tax relievd funds than they need to meet their liabilities,
(ii) when excess money is returned by the scheme to the employer there is a free- standing 35% tax charge,
(iii) certain schemes including some insured schemes submit periodic valuations and/or certificates.

Section 604(1) lays down the requirements for applications for approval.

Section 604(2) provides that the Board may prescribe the form in which applications are to be made.

Section 605(1) empowers the Inspector of Taxes to serve notice on the administrator and employer(s) for the provision of certain returns.

Section 605(2) empowers the Inspector of Taxes to serve notice on insurance companies to provide information in relation to benefits provided for employees by means of annuities.

Section 605(3) requires an employer to report the existence of a non-approved top-up scheme to the Board within 3 months of the scheme’s commencement and to provide the Board with particulars relating to any such scheme.

S ection 605(4) requires the administrator of a non-approved top-up scheme to furnish such particulars to the Board as may be requested within the time limit specified.

Section 606 relates to the responsibilities of the scheme administrator and the fallback position in the event of default.

Section 607 relates to a pilots' benefit fund and lays down the conditions for approval.

Section 608 relates to schemes approved under section 208 ICTA 70.

Section 609 brings into operation Schedule 23 of the Act which applies to schemes approved prior to 23 July 1987. The effect is to apply by statutory override of scheme rules, the requirements introduced by Finance (No2) Act 1987 (see Introduction 4.12).

Section 610 provides that if any amendment is required to a scheme in order to ensure that approval is given or designed to enhance the scheme benefits:-

1. this shall not be prevented under any provision designed to preclude any amendments which would prejudice approval under section 208 or 222 ICTA 1970 and
2. a scheme which provides no powers of amendment may be amended if the members and the employer agree.

Section 611 defines retirement benefits schemes.

Section 611A defines a relevant statutory scheme.

Section 612 interprets provisions and regulations and various terms used under the Act.

Section 149B, Schedule 29 provides that inter alia any gains accruing to an exempt approved scheme shall not be chargeable gains.