Pension (including annuity) payments to employees count as income for payroll purposes. If your pension scheme is registered with HM Revenue & Customs (HMRC) you must deduct PAYE tax from any such payments that you make. However there are no employer or employee Class 1 National Insurance contributions (NICs) due.
This guide sets out the steps you need to follow when starting a new pension payment. This includes notifying HMRC online by filing a form P46(Pen), as well as making sure you use the correct tax code to deduct PAYE tax from the payment.
It also explains which other forms you'll need to complete in respect of your pension payments, such as form P11 and form P14. And it outlines what to do if a pension recipient dies.
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When you make a pension payment you must put it through your payroll, but not in quite the same way as you do with standard wage or salary payments to your employees.
If your pension scheme has been registered with HMRC - allowing
the scheme to benefit from certain tax reliefs and exemptions
- then while you must deduct PAYE tax from any payments you
make from the scheme, you don't need to deduct or pay any
Class 1 NICs on the payments.
When pension payments are made from unregistered pension schemes,
the NICs position is less clear-cut. If your pension scheme
isn't registered, contact HMRC's Employer Helpline.
This guide applies whether you are paying the pension as the employer, or on behalf of the employer. The pension or annuity payments are the deciding factor, not who pays them.
Find contact details for HMRC's Employer Helpline
The tax code you'll need to use when deducting tax from pension payments will differ depending on the pension recipient's circumstances - for details, see the various scenarios outlined below.
If you start paying a new pension to an employee who has just retired from work with you, then you must send HMRC the following information within 14 days of the employee's retirement:
Almost all employers and pension payers are required to file this information online on form P46(Pen).
You must also provide a copy of the information to the pension recipient.
Until you hear otherwise from HMRC you should continue to use the same tax code as you've been using for the individual's employment income. You should use it on a week 1/month 1 basis.
If HMRC hasn't contacted you with a new tax code for the pension recipient by the end of the tax year on 5 April, then continue to use the same tax code in the new tax year, with the following adjustments:
If your new pension payment is to a former employee who has a P45 from their most recent employer, you must:
Almost all employers and pension payers are required to file form P46(Pen) and P45 Part 3 online.
If HMRC hasn't contacted you with a new tax code for the pension recipient by the end of the tax year on 5 April, then continue to use the same tax code in the new tax year, with the following adjustments:
If your new pension payment is to a former employee, but they don't have a form P45 from their most recent employer, you must:
Remember that almost all employers and pension payers are required to file form P46(Pen) online.
If HMRC hasn't contacted you with a new tax code for the pension recipient by the end of the tax year on 5 April then continue to use the same tax code in the new tax year, with the following adjustments:
If the pension recipient gives you a form P45 after you've started paying their pension and after HMRC has provided you with a new tax code, then you must destroy the P45.
If your new pension payment is to an individual who is continuing in employment with you, then:
If your new pension payment is to a dependant of a deceased employee, follow the steps outlined in the earlier section, 'Former employee - no form P45'.
If you are paying pension income from an annuity the individual paid into whilst self-employed you must still deduct PAYE from any pension payments. Follow the steps outlined in the earlier sections depending on whether the individual has a P45 of not.
There are pension recipients of, for example, Retirement Annuity Contracts cases or other pension annuities that are PAYE income but perhaps the recipient was previously self-employed or the annuity is paid by a pension provider on behalf of an employer. The PAYE Regulations refer to PAYE pension income paid by former employer and PAYE pension income paid by other pension payer so there are no cases that are not included.
Student loan deductions should only be made from income that is subject to Class 1 NICs. Most pension income does not attract a Class 1 NICs deduction and providing that is the case no student loan deductions should be made. If your pension scheme has been registered with HMRC (allowing the scheme to benefit from certain tax reliefs and exemptions) then, while you must continue to deduct the appropriate PAYE tax from pension payments made, you do not need to deduct Class 1 NICs or student loan amounts.
When pension payments are made from unregistered pension schemes, the NICs position is less clear-cut. If your pension scheme isn't registered, contact HMRC's Employer Helpline.
Find
contact details for HMRC's Employer Helpline
You must update a form P11 or equivalent record for each separate pension that you pay (including multiple pensions paid separately to a single individual). For more information on completing form P11, follow the link below.
If you start paying a pension when one of your employees retires, then you can continue to use the existing form P11 that you've been using to record their employment income - you don't need to prepare a new one.
If you're making a pension payment to an individual whom you continue to employ, then you'll need to keep two P11s for them - one for their employment income and one for their pension income. You must not merge your payments to them of employment and pension income.
Note that it's helpful to include the following information on form P11 in addition to any other information requested:
Payroll calculations and records: an introduction
At the end of the tax year, complete a form P14 for each separate pension that you've paid during the year (including multiple pensions paid separately to a single individual). Almost all employers and pension providers must file their form P14s online. For more information on completing form P14, follow the link below.
As with form P11, if the pension started as soon as one of your employees retired from working with you, then you only need to complete one form P14 for them at the end of the year.
But if you were paying both employment and pension income at the same time to one of your employees, then you'll need to complete two P14s for them at the end of the year - one for their employment income and one for their pension income.
Note that it's helpful to include the following information on form P14 in addition to any other information requested:
If you have no National Insurance number the date of birth and gender must be completed in all cases.
File your Employer Annual Return: P35 and P14s
If you have a single PAYE scheme that covers both your employees and your pension recipients, then you only need to file a single form P35 at the end of the tax year. This should include details drawn from all your P14s - relating to both employment and pension payments.
If you have more than one PAYE scheme - for example, one that covers your wage or salary payments and one that covers your pension payments - then you'll need to file a separate form P35 for each scheme at the end of the year.
You must file your P35 for any scheme which has 50 or more employees. The need to file online is based on a scheme by scheme basis.
Apart from a small number of exemptions all employers must file their Employer Annual Return (P35 and P14) online.
For more information on completing form P35, follow the link below.
File your Employer Annual Return: P35 and P14s
Almost all employers and pension payers must file these forms online.
You must include the pension recipient's date of birth and gender on form P45 Part 1. If known, you should also include their home address and their National Insurance number, even if no NICs are due on the pension.
Almost all employers and pension payers must file these forms online.
You must include the pension recipient's date of birth, gender and home address on the form. If known, you should also include their National Insurance number, even if no NICs are due on the pension.
File your PAYE in-year forms: P45, P46, etc
Keep a careful record of each pension recipient's postal address, and make sure to update your records if they move home. This is to help ensure that HMRC doesn't send individuals' personal information to an incorrect address.
As mentioned earlier, you must include the recipient's address on form P46(Pen), and it's also helpful to include it on forms P14 and P45 Part 1.
If a pension recipient dies, you must complete and send a form P45 to HMRC:
If you need to make a pension payment to the deceased employee's personal representative after you've submitted form P45 to HMRC but relating to the period before the employee's death:
If you will continue to pay the deceased recipient's pension but to another individual, follow the steps outlined above in the section 'Former employee - no form P45'. If the pension is transferring to more than one individual, complete a separate form P46(Pen) for each new beneficiary.
If payment of the pension will no longer be to an individual but to a body such as a Personal Representative, Trustee or Body Corporate (that is a third party or non individual), then:
When it comes to submitting a form P14 at the end of the tax year for payments other than to individuals, then you should:
Our related guide 'Pension and annuity payments: special situations' sets out the steps you need to take in less common situations - such as paying more than one pension to an individual, making a 'trivial commutation' payment, or suspending pension payments if you're unable to track down its recipient.
PAYE for pension and annuity payments - special situations
Further pension-related information and guidance from HMRC
