RPSM04104750 - Technical Pages: Taxation: Unauthorised payments: Unauthorised payments surcharge: Example of surchargeable unauthorised employer payments

Example of surchargeable unauthorised employer payments

On 1 January 2007 J Bloggs Ltd receives an unauthorised employer payment of £50,000 from the JB pension scheme. The fund value of the scheme at that time was £500,000. J Bloggs Ltd becomes liable to an unauthorised payments charge on the £50,000 payment.

A reference date of 1 January 2007 is set for J Bloggs Ltd.

As the payment represents only 10% of the value of the fund the surcharge threshold has not been reached. This means the payment is not a surchargeable unauthorised employer payment and so there is no unauthorised payments surcharge.

On 1 June 2007 the JB pension scheme makes unauthorised employer payments of £45,000 to J Bloggs Ltd and £22,500 to Bloggs Jnr Ltd respectively. The value of the JB pension scheme was £450,000. This payment to J Bloggs Ltd represents 10% of the fund and the payment to Bloggs Jnr Ltd 5% of the fund value.

J Bloggs Ltd becomes liable to an unauthorised payments charge on the £45,000 payment. Bloggs Jnr Ltd becomes liable to an unauthorised payments charge on the £5,000 payment.

Before these payments neither the surcharge threshold has been reached, nor has 12 months elapsed since the previous reference date of 1 January 2007 for J Bloggs Ltd. So there is both a reference date and an open reference period for this employer.

The percentage value of the £45,000 payment is added to the percentage value of the £50,000 payment made on 1 January 2007. This gives a total percentage amount of 20% (10% + 10%). The surcharge threshold has not been reached so there is no unauthorised payments surcharge.

The £5,000 payment to Bloggs Jnr Ltd triggers a reference date of 1 June 2007 and the start of a reference period in relation to the scheme for Bloggs Jnr Ltd.

Although the scheme has made payments that give a total percentage amount of 25%, the surcharge threshold has not yet been reached as the payments giving rise the percentage amounts totalling 25% are split between two employers.

On 1 September 2007 the value of the JB pension scheme stands at £390,000. J Bloggs Ltd receives another unauthorised employer payment of £19,500 (5% of the fund). J Bloggs Ltd becomes liable to an unauthorised payments charge on this payment.

There is still an open reference period for J Bloggs Ltd as neither 12 months has passed since 1 January 2007 (when the current reference date in relation to the scheme was set in respect of J Bloggs Ltd) and neither has the surcharge threshold been reached. The percentage value of the £19,500 payment is added to the percentage value of the previous unauthorised payments made in the current reference period. This gives total percentage amount in relation to J Bloggs Ltd of 25% (10% for the payment on 1 January 2007 + 10% for the payment on 1 June 2007 + 5% in respect of the latest payment on 1 September 2007). The surcharge threshold has now been reached. This means

• The reference period for J Bloggs Ltd, that began on 1 January 2007, ended on 1 September 2007, as this is the day the surcharge threshold is reached.
• There is a surcharge period in relation to the scheme in respect of J Bloggs Ltd that began on 1 January 2007 and ended on 1 September 2007.
• All unauthorised employer payments made to or in respect of J Bloggs Ltd in that surcharge period are surchargeable.
• J Bloggs Ltd is now liable to the unauthorised payments surcharge in respect of the £50,000 payment made on 1 January 2007, the payment of £45,000 on 1 June 2007 and the £19,500 payment made on 1 September 2007.