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HMRC internal manual

Pensions Tax Manual

Unauthorised payments: essential principles

Glossary PTM000001

Authorised or unauthorised
Authorised payments
Unauthorised payments
Meaning of payment
Taxation of unauthorised payments

Authorised or unauthorised

The tax rules split payments by registered pension schemes into two broad categories:

  • authorised payments, and
  • unauthorised payments

Authorised payments are payments which are envisaged under the tax legislation and are payments which, when made, do not generate an unauthorised payment tax charge. In order for a payment to be authorised it must meet the conditions set out in the legislation for each type of authorised payment.

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Authorised payments

There are two categories of authorised payments:

  • authorised member payments, and
  • authorised employer payments

The different authorised payments attract appropriate tax exemptions or tax charges, depending on their nature.

Authorised member payments

Authorised payments to, or in respect of, members fall under the categories of:

  • pensions
  • lump sums
  • pension death benefits (dependants’ pensions)
  • lump sum death benefits
  • recognised transfers
  • scheme administration member payments
  • payments in accordance with a pension sharing order
  • certain other payments set out in regulations

Authorised employer payments

Authorised payments to, or in respect of, a sponsoring employer fall into the following categories:

  • public service scheme payments
  • authorised surplus payments
  • compensation payments
  • authorised employer loans
  • scheme administration employer payments.

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Unauthorised payments

If a payment is made, to or in respect of a member or a sponsoring employer of an occupational pension scheme, by a registered pension scheme which does not fall under any of the categories above as authorised (member or employer) payments, it is by default an unauthorised payment. These include for example (not exclusively):

  • most lump sums paid to a member before normal retirement age, except, for example, on ill-health
  • transfers to a pension scheme that is neither a registered pension scheme nor a qualifying recognised overseas pension scheme
  • loans to members

Other situations may be treated as ‘deemed’ unauthorised payments, such as recycling of pension commencement lump sums - PTM133000


  • It’s possible that certain payments might be made by a registered pension scheme that are seemingly unauthorised payments but are not unauthorised payments as the payments are made in genuine error and, once spotted, are rectified as soon as reasonably possible. For more details see PTM146000
  • Very small errors that do not exceed £250 in total and which are made in certain circumstances do not have to be reported (and nor will HM Revenue & Customs seek to collect the tax that, in strictness, would be due in respect of the unauthorised payment). For more details see PTM146300

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Meaning of payment

A payment is not just a payment of a monetary amount. The definition of a payment also includes a transfer of assets, and any other transfer of money’s worth. See PTM026000

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Taxation of unauthorised payments

Sections 208, 209 and 239 Finance Act 2004

The tax rules set out the conditions for a payment to be authorised and where a payment does not fall within these rules an unauthorised payment will have been made which will trigger up to three separate tax charges:

  • The unauthorised payments charge - see PTM134100

​This is an income tax charge at a flat rate of 40% (regardless of whether the person otherwise falls to be taxed at basic or higher rates), based on the value of the unauthorised payment. This charge is usually payable by the member or the sponsoring employer but other persons may be liable.

  • The unauthorised payments surcharge - see PTM134100

Where unauthorised payments reach or go above a set amount in a set period an additional income tax charge at a rate of 15% will be due, based on the value of the unauthorised payment. This charge is usually payable by the member or the sponsoring employer but other persons may be liable.

This is an income tax charge that arises on the scheme administrator in respect of certain unauthorised payments in addition to the unauthorised payments charge and, when applicable, unauthorised payments surcharge. 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.