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HMRC internal manual

Employment Income Manual

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Employment income provided through third parties: exclusions: retirement benefits etc: Steps following unauthorised payments under Registered Pension Schemes

Regulation 4 of the Employment Income Provided Through Third Parties (Excluded Relevant Steps) Regulations 2011 [SI2011/2696]

Part 7A income does not arise on relevant steps to the extent that the sum or asset involved in the step is sourced from an unauthorised payment under a registered pension scheme.

Page contents:

Regulation 4 - conditions 
Regulation 5: modification to the relationship between sections 554T to 554X 
Similarity of regulation 4 to regulation 3 

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Regulation 4 - conditions

This exclusion from Part 7A income applies to relevant steps only to the extent that:

  • the sum or asset that is the subject of the relevant step, is sourced from a payment made or deemed to have been paid under a registered pension scheme (see definition in RPSM20000000), and
  • the payment under the registered pension scheme was subject to the unauthorised payments charge (see RPSM04104510)

Sourcing: general meaning

A sum of money or asset can be said to be “sourced” for the purpose of this regulation, if it has arisen or derived from the unauthorised payment. “Sourced” is not intended as a particular reference to the absolute origin of the money or asset.

Sourcing: by arising or deriving directly or indirectly

In testing whether a sum of money or asset has “arisen or derived” from a particular unauthorised payment, it makes no difference whether the connection between the two is direct or indirect.

Sourcing: part or whole

If the sum of money or asset that is the subject of the relevant step is sourced only partly but not wholly from the unauthorised payment, then you treat the relevant step as being two relevant steps:

  • one in relation to the sum or asset in so far as it is sourced from the unauthorised payment, and
  • one in relation to the sum or asset in so far as it is not so sourced.

And you then apportion the sum of money or asset on a just and reasonable basis between those two relevant steps.

This regulation only shelters the former step.

What counts as a just and reasonable basis will depend on the facts of the case.

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Regulation 5: modification to the relationship between sections 554T to 554X

554S outlines the relationship between sections 554T to 554X. Regulation 5 makes a limited modification to 554S, adding in the exclusions provided by regulations 3 and 4 like so:

Sections 554T, 554U, 554V, 554W, regulations 3 and 4 of SI2011/No2696 and 554X are exclusions relating to retirement benefits etc.

To the extent that they apply, you apply them in that order.

On Section 554T (employee pension contributions), see EIM45615.

On Section 554V (purchases of annuities out of pension scheme rights), see EIM45625 onwards.

On Section 554W (certain retirement benefits etc), see EIM45635 onwards.

On regulation 3, see EIM45655.

On regulation 4, see above on this page.

On Section 554X (transfers between certain foreign pension schemes), see EIM45645 onwards.

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Similarity of regulation 4 to regulation 3

Whilst regulations 4 and 3 both provide an exclusion for unauthorised payments, they apply to funds from different sources:

  • Regulation 4 protects unauthorised payments from registered pension schemes, from suffering a further tax charge that would otherwise arise through Part 7A.
  • Regulation 3 protects unauthorised payments from certain funds in particular non-UK pension schemes, from suffering a further tax charge that would otherwise arise through Part 7A.