RPSM05400140 - Employer Pages: Contributions and tax relief: Payments to employers: Is a loan an authorised payment

Is a loan to an employer an authorised payment?

Section 175(d) of FA 2004 treats authorised employer loans as authorised employer payments providing that the terms of section 179 are satisfied.

There are five key tests that a loan must satisfy to qualify as an authorised employer loan. If a loan fails to meet one or more of these tests an unauthorised payment charge will apply. The unauthorised payment is calculated separately for each of the five key tests but to prevent double charging, if the loan fails on more than one test, the unauthorised payment will be the greatest amount calculated under each test. In any case the amount of the unauthorised payment must not exceed the amount of the loan when it was made.

The five key tests are,

• security,
• interest rates,
• term of loan,
• maximum amount of loan, and
• repayment terms.

These are covered in RPSM07103060to RPSM07103150

If the registered pension scheme is not an occupational pension scheme there will be no sponsoring employer. Therefore any loans made by the scheme to an employer who is connected to the member will attract a tax charge on the member. For these purposes, “connected party” is defined in ICTA88/S.839 - see RPSM07103180.