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HMRC internal manual

Pensions Tax Manual

Unauthorised payments: the unauthorised payments charge and the unauthorised payments surcharge: essential principles

Glossary PTM000001

The unauthorised payments charge
The unauthorised payments surcharge
Reporting and paying the charges
Example of the tax charges arising on unauthorised payments

The unauthorised payments charge

Section 208 Finance Act 2004

Unauthorised payments are liable to an income tax charge known as the unauthorised payments charge. The tax charge is at a flat rate of 40%, based on the amount of the unauthorised payment. The charge is a free-standing tax charge, which means, for example, any losses a taxpayer may have cannot be set against the tax charge.

The unauthorised payments surcharge

Section 209 Finance Act 2004

A further income tax charge called the unauthorised payments surcharge will apply if the unauthorised payments made by a registered pension scheme reach or go above a set threshold within a certain time period. This is generally unauthorised payments made in a 12 month period that add up to 25% or more of the person’s pension rights, but detailed explanations are in the following pages.

The unauthorised payments surcharge is paid in addition to the unauthorised payments charge.

Unauthorised payments to which the surcharge applies are known as surchargeable unauthorised payments. Surchargeable unauthorised payments will be either:

  • surchargeable unauthorised member payments - see PTM134400 for details
  • surchargeable unauthorised employer payments - see PTM134600 for details.

Amount of the unauthorised payments surcharge

The rate of the unauthorised payments surcharge is 15%, based on the amount of the surchargeable unauthorised payment. So together with the unauthorised payments charge the total tax liability in respect of a surchargeable unauthorised payment is 55%.

As with the unauthorised payments charge, the surcharge is a freestanding tax charge, which means any losses a taxpayer may have cannot be set against the tax charge.

Unauthorised payments surcharge ‘good faith’ discharge

The person liable for the unauthorised payments surcharge (only, not the unauthorised payments charge) can apply for discharge of their liability to the surcharge if they can show that it would not be just and reasonable for them to be liable in respect of the unauthorised payment - PTM134700

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Reporting and paying the charges

Either the member or the sponsoring employer is usually responsible for reporting and paying the charges, depending on the type of unauthorised payment - PTM134200

A scheme member may mandate for the pension scheme administrator to arrange for payment. Otherwise, the charges must be reported on a Self Assessment form - PTM134300

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Example of the tax charges arising on unauthorised payments

Tom is a member of an occupational pension scheme. On 7 July Tom receives an unauthorised member payment from his scheme of £10,000.

On 31 December that year Tom’s wife Karen also receives an unauthorised payment of £10,000 from the scheme. This payment is also an unauthorised member payment as it was made in respect of Tom’s membership of the scheme.

So in the same tax year the total of the unauthorised member payments made to or in respect of Tom is £20,000. As Tom is still alive, he is liable to an unauthorised payments charge on the whole £20,000 even though he only received £10,000.

The amount of the unauthorised payments charge is £8,000 (40% of £20,000).

The payments were surchargeable member payments. Tom confirms with the scheme administrator that the payments use up 25% or more of the value of his rights in the scheme and so the surcharge threshold is reached. Tom has to pay the unauthorised payments surcharge.

The amount of the unauthorised payments surcharge is £3,000 (15% of £20,000).

The total tax to pay is £11,000.

The scheme administrator of Tom’s scheme reports the payments to HMRC on an Event Report within the required time limit.

Tom declares the payments on his Self Assessment return for the tax year in which the payments were made.