a) When you make an unauthorised payment (Manual) to a member of your scheme there is:
b) When you make any other scheme chargeable payment.
a) If the scheme sanction charge arises because you have made unauthorised payments the legislation provides that if the member has paid their tax on the unauthorised payment you may have a deduction of up to 25 per cent against the Scheme Sanction Charge so the amount you pay is only 15 per cent.
For example:
You have to make unauthorised payments to ten members each for £5,000. The scheme sanction charge assessment will be
£50,000 (10 x £5,000) x 40% = £20,000
Less a deduction of 25% for the tax paid by the members £12,500
Amount of scheme sanction charge payable £7,500
b) If the scheme sanction charge arises because you make another scheme chargeable payment it will be 40 per cent of that amount.
If scheme sanction charges are due under both category a) and category b) they will appear on the same assessment.
From 6 April 2010 if you have to make an unauthorised payment and you want to obtain certainty about the amount of scheme sanction charge you have to pay and minimise the work the member has to do, you can ask the member to complete a mandate giving you authority to withhold from the unauthorised payment the tax and, if applicable, any surcharge they are due to pay via a Self Assessment tax return.
You will then deduct the amount in question and send that payment to us HM Revenue & Customs, Pension Scheme Services, Fitzroy House, Castle Meadow Road, Nottingham with a covering letter stating the name, date of birth and National Insurance number of the member from whom the tax has been withheld and, where a surcharge has also been deducted, identify how much of the payment relates to any surcharge.
The benefit for the member is that they will have nothing further to do and will not need to include the unauthorised payment on their Self Assessment tax return.
When we receive the payment we will record the amount and what it relates to.
After the Event Report for that year is received we will compare the unauthorised payment entries on the Event Report against our database of tax that has been withheld from unauthorised payments. We will then raise the scheme sanction charge assessment. The assessment will be based on the total amount of the unauthorised payments less a deduction equivalent to 25 per cent of the tax withheld from unauthorised payments and sent to us when raising the scheme sanction charge. For example:
You have to make unauthorised payments to ten members each for £5,000. All of them sign a mandate allowing you to withhold the tax they are due to pay on the unauthorised payment. You withhold the amount due and pay the members the net amount of £3,000 each and pay the amount equivalent to the tax of £2,000 over to us.
The scheme sanction charge assessment will be
£50,000 (10 x £5,000) x 40% = £20,000
Less a deduction of 25% for the tax paid by the members £12,500
Amount of scheme sanction charge payable £7,500
If you also have a scheme sanction charge due on, for example, a payment that the pension scheme is treated as having made and classed as a scheme chargeable payment by section 183 or 185 because of unauthorised borrowing, it will be included on the same assessment.
The scheme sanction charge is payable by 31 January following the end of the tax year in which the charge arose [Registered Pension Schemes (Accounting and Assessment) Regulations 2005 - SI 2005/3454 (Opens new window)] (RPSM04301060) So the charge for 2006-07 was due 31 January 2008, for 2007-08 was due 31 January 2009, 2008-09 was due 31 January 2010 and 2009-10 will be due 31 January 2011. If you have not paid by these dates interest will be charged for late payment.
You can wait until you receive an assessment from us for the scheme sanction charge but if you have not received an assessment in time for you to pay by the due date and you want to avoid an interest charge you should make a payment on account of the charge due by sending the cheque, together with the Pension Schemes Tax Reference number and your Scheme Administrator ID to Pension Schemes Services. We will acknowledge receipt of the cheque and provide you with the charge reference for the payment.
For the tax years 2006-07, 2007-08 and 2008-09 - they will be issued between 1 July 2010 and 30 September 2010.
For the tax years 2009-10 onwards - if the Event Report is received before 1 December we will send you a notice of assessment within 30 days.
If the Event Report is received after 30 November 2010 we will send you a notice of assessment within two months. This is because we will be dealing with issues relating to the peak filing period during this time. If however you need the assessment urgently then we will try and assist.
If you have received an assessment, the instructions on how to make your payment can be found on the back of the assessment and on the HMRC website.
Once we issue the scheme sanction charge assessment you can consider the liability final providing we do not discover the Event Report was incorrect. For the tax years 2009-10 onwards if you have not received a scheme sanction charge assessment within 12 months of the deadline for filing your Event Report then no assessment will be raised unless of course you do not file your Event Report on time in which case it will be within 12 months of the date you filed your return.
Pension Schemes Services may be prepared to settle the liability by informal arrangements ('contract settlements') in cases where:
It is up to you how you word the mandate but you might want to include something along the lines below:
“I authorise you to withhold the tax I am due to pay of 40 per cent of the payment(s) of x as it/they is/are an unauthorised payment(s) and you will pay this tax over on my behalf to HM Revenue & Customs. (I also authorise you to withhold the surcharge of 15 per cent because the unauthorised payment(s) are more than 25 per cent of my pension fund and you will pay this tax over on my behalf to HM Revenue & Customs.)
I understand by giving you this authority I do not need to report the unauthorised payment(s) on my self assessment return.”
That is for you decide if you are happy it provides you with the necessary proof they have authorised you to withhold the tax from the unauthorised payment and to pay it over to us.
Yes you can pay both at the same time by sending them to HM Revenue & Customs Pension Scheme Services, FitzRoy House, Castle Meadow Road, Nottingham. Your covering letter should set out how much of the payment you are making is a payment on account of the scheme sanction charge plus the name(s), date of birth and National Insurance number of the member(s) from whom the tax has been withheld and where a surcharge has also been deducted, identify how much of the payment relates to it.
The obtaining and signing of mandates is a purely a voluntary process for both scheme administrators and members. If the member does not want to sign a mandate then the normal rules will apply and the member will have to account to HMRC for the tax on their Self Assessment tax return.
The amount payable will depend on the circumstances in each case and factors such as whether you were misled or not will be considered.
Your Event Reports for those years are incorrect and you will need to amend them.
RPSM04104870 gives details of when you can apply for a discharge from the scheme sanction charge.
You should amend your Self Assessment tax return.
The completion notes for the Self Assessment tax return for the tax year 2010-11 onwards will be amended to advise you that you do not need to include unauthorised payments on the return if you have given authority to the pension scheme administrator to withhold the tax due on the payment and pay it over to HMRC. The same will also apply to the surcharge if due.
See below what a scheme sanction charge will look like.
