RPSM04104831 - Technical Pages: Taxation: Unauthorised payments: Scheme sanction charge: Examples

Examples of the scheme sanction charge

Example 1 – Unauthorised payment not reduced by amount to take account of the scheme sanction charge.

The KB pension scheme makes an unauthorised payment of £4,000 in the 2007-2008 tax year.

The amount of the unauthorised payments charge is £1,600. This is paid by Kevin, who received the unauthorised payment.

The unauthorised payment is also a scheme chargeable payment and so triggers a scheme sanction charge. The amount of the scheme sanction charge is £1,600 (40% of the £4,000 scheme chargeable payment).

As Kevin has already paid the unauthorised payments charge the liability to the scheme sanction charge is reduced. The reduction is the lower of

• £1,000 (25% of the amount of the £4,000 scheme chargeable payment), and
• £1,600 (the amount of the unauthorised payments charge that has been paid).

The liability to the scheme sanction charge is reduced by £1,000.

So the amount of the scheme sanction charge that has to be paid by the scheme administrator of the KB pension scheme is £600.

Example 2 – Unauthorised payment reduced by amount to take account of the scheme sanction charge

The ABC pension scheme intends to make an unauthorised payment of £10,000 to Alan, a scheme member.

An amount of £4,000 is withheld from the unauthorised payment in respect of the scheme administrator’s possible liability to the scheme sanction charge at a rate of 40%. The balance of £6,000 is paid to Alan.

Alan reports an unauthorised payment of £10,000 on his self-assessment return. This is because the amount of the reduction, £4,000, from the intended payment of £10,000 is treated as part of the payment received by Alan (see RPSM04104030). Alan pays the unauthorised payments charge of £4,000 to HMRC.

As Alan has already paid the unauthorised payments charge the liability to the scheme sanction charge is reduced. The reduction is the lower of

• £2,500 (25% of the amount of the £10,000 scheme chargeable payment), and
• £4,000 (the amount of the unauthorised payments charge that has been paid).

The liability to the scheme sanction charge is reduced by £2,500.

So the amount of the scheme sanction charge that has to be paid by the scheme administrator of the ABC pension scheme is £1,500.

The scheme administrator then pays £2,500 to Alan within 2 years of the original unauthorised payment. This further payment is not an unauthorised payment and is not a scheme chargeable payment.