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HMRC internal manual

Pensions Tax Manual

Unauthorised payments: the scheme sanction charge: reporting and paying the scheme sanction charge

Glossary PTM000001
   

 

Reporting the scheme sanction charge
Liability to the scheme sanction charge
Relief from liability to the scheme sanction charge

 

Reporting the scheme sanction charge

Section 255 Finance Act 2004

An unauthorised payment and certain scheme chargeable payments should be reported to H M Revenue & Customs (HMRC) on the Event Report by 31 January following the tax year in which the payment is made - PTM161100.

When HMRC becomes aware that a scheme chargeable payment has been made HMRC will issue an assessment on the scheme administrator for the amount of scheme sanction charge due.

Interest charges

Regulation 5 The Registered Pension Schemes (Accounting and Assessment) Regulations 2005 - SI 2005/3454

Interest is due on scheme sanction charge tax from the 31 January following the end of the tax year in which the scheme sanction charge arose.

See the gov.uk website for details of the interest charge.

The scheme administrator can pay the scheme sanction charge in advance of receiving an assessment to reduce an interest charge. To make a payment on account of the charge due, the administrator should send a cheque together with the Pension Schemes Tax Reference number and their Scheme Administrator ID to HMRC Specialist Personal Tax– Pensions who will then provide a charge reference for the payment.

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Liability to the scheme sanction charge

Section 239 Finance Act 2004

The scheme administrator is liable for payment of the scheme sanction charge.

They are liable to the scheme sanction charge even if they or any other person who is also liable to the scheme sanction charge are not resident or domiciled in the United Kingdom.

Scheme wound up

Sections 161(3) and (4) and 239(2) Finance Act 2004

A payment can be still classed as made by a scheme even if the payment is made after the scheme has wound up. A payment is treated as having been made by a registered pension scheme if the payment is made under or in connection with an investment acquired using funds held for the purposes of a registered pension scheme even if the pension scheme is wound up after the investment is acquired. Where a payment is treated as a payment from a scheme that has wound up (as above) and that payment is a scheme chargeable payment the person liable to the scheme sanction charge is the person(s) who was the scheme administrator immediately before the scheme wound up.

The same also applies in respect of a benefit provided under, or in connection with, such an investment.

No scheme administrator

Where there is no scheme administrator, the liability passes to other persons connected with the scheme (See PTM155000).

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Relief from liability to the scheme sanction charge

Section 266B Finance Act 2004

The relief described below applies for orders made on or after 1 September 2014. For details of which orders applied before 1 September 2014 see RPSM04104860 on the National Archives version of the Registered Pension Scheme Manual.

A scheme administrator may claim relief from a proportion of the scheme sanction charge where:

  • they became liable due to payment of an unauthorised member payment and
  • either

    • property or money is transferred to a registered pension scheme, or
    • a sum is paid to a registered pension scheme, and
  • that transfer or payment was made to the registered pension scheme in accordance with either

    • a court order pursuant to section 16(1) or 19(4) Pensions Act 2004 or Article 12(1) or 15(4) Pensions (Northern Ireland) Order 2005, or
    • an order by the Pensions Regulator under section 21(2)(a) Pensions Act 2004 or Article 17(2)(a) Pensions (Northern Ireland) Order 2005.

The scheme administrator may claim relief from the scheme sanction charge within 1 year beginning with the day on which the property or money is transferred or the sum is paid to the scheme.

The amount that can be reclaimed is represented by the formula

ASO / UMP

ASO = the amount that is the total of:

* the market value of any property transferred to the scheme,
* the amount of any money transferred to the scheme, and
* the amount of the sum paid to the scheme

in accordance with the order under sections 16(1), 19(4) and 21(2)(a) Pensions Act 2004 or Articles 12(1), 15(4) and 17(2)(a) ) Pensions (Northern Ireland) Order 2005.

UMP = the amount of the unauthorised member payment.

If ASO is more than UMP the amount of relief from the scheme sanction charge that can be claimed is the whole amount of the scheme sanction charge.