What are Unauthorised Payments and what taxation is applied?

Unauthorised payments to, or in respect of a person who is or has been, a member or sponsoring employer of a scheme are payments that are neither

  • an authorised member payment, nor
  • an authorised employer payment.

This also includes payment to a person who is connected to a member, a former member, a sponsoring employer or a former sponsoring employer if they fall within the definition of section 839 ICTA 1988. Payment in this context has a broad meaning. The definition of a payment includes:

  • a transfer of assets, and
  • any other transfer of money’s worth.

So a payment could include the following:

  • Giving a pension scheme asset, e.g. shares, to an individual or other person
  • Selling a pension scheme asset for less than it is worth (this is a transfer of value or money’s worth to the recipient)
  • The pension scheme buying an asset for more than its market value (this is a transfer of money’s worth to the seller)

This is not meant to be a complete list of payments. Unauthorised payments fall into two categories:

  • unauthorised member payments, and
  • unauthorised employer payments.

The payment of unauthorised payments will generate up to three tax charges.

  • The unauthorised payments charge

An income tax charge at a rate of 40%, based on the value of the unauthorised payment

  • The unauthorised payments surcharge

Where unauthorised payments go above a set amount (currently 25% of the member’s fund) in a set period (12 month rolling cycle) an additional income tax charge at a rate of 15% will be due, based on the value of the unauthorised payment.

  • The scheme sanction charge

An income tax charge on the scheme administrator in respect of certain unauthorised payments in addition to the other two tax charges. The tax is due at a rate of 40%, based on the value of the payment. However, the rate may be reduced to as low as 15% where the unauthorised payments charge has been paid.

To avoid these charges, we firmly believe that you should work with an Independent Trustee if you are looking to set up a SSAS. Contact us for details.

0 comments on “What are Unauthorised Payments and what taxation is applied?
  • SSAS and Legal Entity IdentifiersWhat are Legal Entity Identifiers and Does Your SSAS Need One? From 3rd January 2018 it will be a requirement for legal entities and structures to obtain a reference called a Legal Entity Identifier (LEI) from the London Stock Exchange in order for the trustees of a SSAS to carry on investing. This» Read More
  • Mr D.B.PML always puts my interests first. Being a fairly cynical type, I have not always found it easy to be convinced that the pension adviser I am talking to for advice and guidance is genuinely prepared to put my interests before his own potential earnings from commission!