PSI17.3.3 - Tax Treatment of Approved Schemes and Payments by Approved Schemes: Payments to Employers - Exceptions to Section 601(2) Charge

(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)

[PN17.35]

The 35% tax charge under section 601(2) does not apply to payments made to an employer before the scheme became exempt approved nor does it apply to payments to employers who are exempt or entitled to claim exemption from income tax or corporation tax. Charities and certain public sector bodies fall into the latter category. In addition, regulation 4 of the Pension Scheme Surpluses (Administration) Regulations 1987 [SI 1987 No 352] excludes the following payments from the scope of the 35% tax charge:

1. the reimbursement of expenses incurred by the employer on behalf of the administrator;
2. the payment of interest on or repayment of a loan from the employer;
3. a commercial loan to, or investment in, the employer;
4. the reimbursement of any financial loss caused by fraud or negligence of a scheme member (see PSI6.1.25), and
5. the reimbursement of a payment by the employer of a State Scheme premium (see PSI6.1.10)

Other circumstances in which a payment to the employer will not attract the 35% tax charge are:

1. a refund of premiums or contributions paid in error which satisfies the criteria set out in PSI20.7.20,
2. where a scheme is abandoned (see PSI20.7.23-24), or
3. where contributions paid on a provisional basis are subsequently found not to be due (see PSI20.7.19).

The fact that the payments described in this paragraph do not attract a tax charge under section 601(2) does not necessarily mean that they will escape a tax charge altogether. They may, depending on circumstances, be taxable under section 601(5) ICTA 1988. This will be a matter for the Inspector of Taxes to decide and you should generally inform the Inspector (see PSI20.7.19 and PSI20.7.22 for example).