RPSM04104650 - Technical Pages: Taxation: Unauthorised payments: Unauthorised payments surcharge: Example of surchargeable unauthorised member payments

Example of surchargeable unauthorised member payments

Trevor has two money purchase arrangements in a registered pension scheme, each with a value of £50,000 on 1 January 2007.

On 1 January 2007 Trevor receives an unauthorised member payment of £10,000 from arrangement 1. This results in Trevor being liable to an unauthorised payments charge on the £10,000 payment.

A reference date of 1 January 2007 is set in relation to the scheme in respect of Trevor.

As the payment represents 10% of the value of the arrangements under the scheme in respect of Trevor, the surcharge threshold has not been reached. This means the payment is not a surchargeable unauthorised member payment and so there is no unauthorised payments surcharge.

On 1 February 2008 the value of arrangement 1 is £42,000 and arrangement 2 is £52,000. Trevor receives unauthorised member payments of £9,400 from arrangement 1 and £9,400 from arrangement 2. Trevor is liable to an unauthorised payments charge on both payments.

As over 12 months has passed since the last unauthorised member payment made from arrangement 1 a new reference date of 1 February 2008 is set in relation to the scheme in respect of Trevor.

The payments from arrangements 1 and 2 represents 20% of the total value of Trevor’s arrangements under the scheme when the payments were made. This means the surcharge threshold has not been reached and so no unauthorised payments surcharge is due on the total unauthorised member payments of £18,800.

On 1 March 2008 the value of arrangement 1 is £32,600 and arrangement 2 is £42,600. Trevor receives another unauthorised member payment of £5,000 from arrangement 1. This represents 6.65% of the total value of Trevor’s arrangements under the scheme when the unauthorised payment is made. Trevor becomes liable to the unauthorised payments charge in respect of the £5,000 payment.

Before this latest unauthorised payment neither the surcharge threshold has been reached, nor has 12 months elapsed since the previous reference date of 1 February 2008 in relation to the scheme in respect of Trevor was set. So there is both a reference date and an open reference period under the scheme in respect of Trevor.

The percentage value of the latest unauthorised payment is added to the percentage value of the payments made from the scheme on 1 February 2008. This gives a total percentage amount of 26.65% (20% + 6.65%). The surcharge threshold in respect of Trevor has now been reached. This means

• The reference period in respect of Trevor, that started on 1 February 2008, ended on 1 March 2008, as this is the day the surcharge threshold is reached.
• There is a surcharge period in relation to the scheme in respect of Trevor that began on 1 February 2008 and ended on 1 March 2008.
• All unauthorised member payments made to or in respect of Trevor in that surcharge period are surchargeable.
• Trevor is now liable to the unauthorised payments surcharge in respect of both of the unauthorised member payments of £9,400 made on 1 February 2008 and the payment of £5,000 made on 1 March 2008.