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HMRC internal manual

Employment Income Manual

Non-approved schemes: introduction

Sections 386-400 ITEPA 2003


The guidance in this section (from EIM15400 to EIM15438) applies only to receipts from a non-approved retirement benefits scheme and so applies only before 6 April 2006. If dealing with a receipt on or after that date, proceed in accordance with the guidance for receipts from employer-financed retirement benefits schemes in the first section (from EIM15015 to EIM15399).

In general terms, a retirement benefits scheme is one that provides for benefits on an employee’s retirement or death (for the full definition see EIM15402).

Before 6 April 2006, occupational retirement benefits schemes could be granted approval at HMRC’s discretion, by Pension Schemes Services (PSS). These, and some other similar schemes (see EIM15407), received significant tax advantages. For example, their investment income was not taxed, contributions to the scheme qualified for tax relief and lump sum benefits (not pensions) were exempt from tax. From 6 April 2006, such schemes automatically became registered pension schemes. There is detailed legislation governing such schemes and the guidance in respect of them is in the Pensions Tax Manual. The Employment Income Manual guidance does not deal with registered pension schemes.

None of the tax advantages referred to above apply where the scheme was outside the categories of schemes identified in EIM15407). Before 6 April 2006, such schemes were known as ‘non-approved’ (or unapproved) retirement benefits schemes (and commonly referred to as URBS).

These schemes exist, both for individual employees and groups, mainly because legislation and HMRC’s discretionary approval practice limited the benefits that an approved scheme could provide. For example, in calculating retirement benefits that can be taken from an approved scheme, any salary above a certain sum (known as the “earnings cap” could not be taken into account (see EIM15429 for figures). So a non-approved scheme was often set up to provide benefits based on salary in excess of that sum.

The general structure of the legislation for non-approved retirement benefits schemes is to tax as follows:

  • employer’s contributions to the scheme made before 6 April 2006 count as employment income (see EIM00512) of the employee under section 386 ITEPA 2003 (see EIM15412) - there is no equivalent charge for contributions made to an employer-financed retirement benefits scheme after 5 April 2006
  • all lump sum payments (including commutations: see EIM15427) out of non-approved schemes count as employment income (see EIM00512) of the recipient under section 394 ITEPA 2003 (see EIM15420)
  • the charge on lump sums paid out may be reduced where prior employer contributions have been taxed (see EIM15423) and where the employee has made contributions (see EIM15424)
  • a pension from these schemes is charged separately as pension income under Part 9 ITEPA 2003 (see EIM74001)
  • see EIM15420 for guidance on how annuities, annual payments and non-cash receipts are dealt with

See EIM15402 for the definition of a non-approved scheme.

In cases where it is claimed that the facts of the case do not constitute a non-approved retirement benefits scheme, please refer the case to Pension Scheme Services (Technical), FitzRoy House, Castle Meadow Road, Nottingham NG2 1BD.