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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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Non-approved schemes: persons chargeable and residence rules

Sections 386(6) and 394 ITEPA 2003

It was common for a non-approved scheme to provide benefits for people other than an employee. The payment of a lump sum or pension to the surviving spouse of an employee who dies in service would be a typical example.

For employer contributions to non-approved schemes, provision of benefits for any of the following was treated as made to the employee (Section 386(6) ITEPA 2003). So an employer’s contributions to a scheme providing benefits for these people were also chargeable on the employee (see EIM15412):

  • the employee’s spouse or widow/widower and (from 5 December 2005) civil partner/surviving civil partner
  • the employee’s children
  • dependants of the employee
  • the personal representatives of the employee.

Where any benefit was paid out of a non-approved scheme:

  • where the recipient is an individual, the benefit counts as employment income of that individual under Section 394(1) ITEPA 2003 (see EIM00512)
  • where the recipient is not an individual (for example, a company or club) the ‘administrator’ of the scheme is assessed to income tax (Section 687 IT(TOI)A 2005). See EIM15410 and EIM15402 respectively for definitions of ‘administrator’ and ‘non-approved’.

The residence rules found in Chapters 4 and 5 Part 2 ITEPA 2003 (see EIM40001) do not apply to a charge under Section 394 ITEPA 2003. That is because such a charge is classified as ‘specific employment income’ by Section 7(4) ITEPA 2003 and those Chapters are not applicable to such income (Section 6(3) ITEPA 2003). A charge arises where there is either a person or a source of income in the UK. However, if the recipient is not resident in the UK tax relief may be due under the terms of any Double Taxation Agreement between the UK and the country is which the recipient is resident.

For the year of assessment, see EIM15411.