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HMRC internal manual

Pensions Tax Manual

Unauthorised payments: deemed or specific situations that are unauthorised payments: allocation of unallocated employer contributions

Glossary PTM000001

When allocation of unallocated employer contributions is an unauthorised payment

Section 172C Finance Act 2004

A registered pension scheme is treated as making an unauthorised member payment where:

  • an employer pays contributions into the scheme
  • those contributions are not allocated to any individual
  • the contributions are subsequently allocated to a member’s other money purchase arrangement or hybrid arrangement that includes the provision of other money purchase benefits in any tax year
  • the amount of the allocated contributions exceeds the ‘permitted maximum’, and
  • in the tax year in question, the member and the employer are connected or the member is connected with a person who is connected with the employer.

For this purpose, the ‘permitted maximum’ is the maximum amount of relief (see PTM044100) available to the member in the tax year in which the allocation of contributions takes place (regardless of the amount of contributions actually paid by or on behalf of the member in that year) less any contributions paid by the employer in respect of the member in that same tax year.

The ‘permitted maximum’ is further reduced if the member is a member of one or more other registered pension schemes by dividing the figure found in the paragraph immediately above by the number of schemes of which the person is a member.

The amount of the deemed unauthorised payment is the amount by which the allocated contributions exceeds the ‘permitted maximum’.

The unauthorised member payment is treated as being made to the member in respect of whom the contributions are allocated (or that member’s personal representatives).

For a definition of ‘connected person’ see PTM027000