RPSM07103110 - Technical Pages: Investments: Loans: Loans to employers: Term of loan - amount of unauthorised payment

Term of loan - amount of unauthorised payment

Where the terms of a loan exceeds the 5 year period an unauthorised payment will be charged as follows

Where

DLRP is the total number of days from the date the loan is taken out until the actual loan repayment date.

DFY is the number of days in the period from the date the loan is taken out until five years after that date.

AO is the amount owing (including interest) at the beginning of the loan or when the terms of the loan are altered.

This provision will only apply

• if the terms of the loan when it is taken out provide that it will last for more than five years, or
• if the terms of the loan are altered (and the rollover provisions do not apply - see RPSM07103160) and the loan can last for more than five years in total.

Example

MM Ltd RBS makes a loan to sponsoring employer MM Ltd on 6 April 2006. The loan repayment date is 5 October 2011. The amount outstanding on the loan including interest when the loan is taken out is £10,000.

The amount of the unauthorised payment is:

The employer MM Ltd will be liable to an unauthorised payments charge of £1,002 x 40%.

MM Ltd RBS will also be liable to a scheme sanction charge.

If the calculation above results in an amount which exceeds the amount of the loan outstanding the amount of the unauthorised payment will be limited to 100% of the amount of loan outstanding including interest.

Where a loan has been rolled over, the 5 year period will commence on the date the rollover took place.