If approval is cancelled the effect is that the funds were never held for the purpose of an exempt approved scheme. Money repaid to an employer should be treated as a trading receipt (taxable under section 601(5) ICTA 1988) and the Inspector informed accordingly. The refund will not be subject to the special 35% tax imposed by section 601(2) ICTA 88 and such cases should not be referred to Compliance (Surplus Section). Refunds of contributions to employees in such circumstances should be reported to the Inspector who should be asked to recoup the tax relief erroneously given for the years concerned, either by Schedule E assessment or a PAYE coding adjustment (see PSI22.3.56c).
If approval is not cancelled, the scheme should continue to be administered in accordance with the trust deed and rules. Any payments from the scheme which are not expressly authorised by the scheme rules will attract a tax charge under section 600 ICTA 1988 (employee refund) and may attract a tax charge under section 601 ICTA 1988 (employer refund) should the employer fail to reimburse the scheme in full. The scheme may of course wind up in accordance with its rules; any surplus will have to be dealt with as appropriate - refer to Compliance (Surplus Section).
