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HMRC internal manual

Pensions Tax Manual

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HM Revenue & Customs
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Other authorised payments: scheme administration employer payments

Glossary PTM000001
   

Scheme administration employer payments - explained
Scheme administration employer payments - paying tax

Scheme administration employer payments - explained

Section 180 Finance Act 2004

Scheme administration employer payments are payments made by a registered pension scheme that is an occupational pension scheme, to or in respect of a sponsoring employer (PTM022000) or a former sponsoring employer for the purposes of administration or management of the scheme.

Examples of scheme administration payments could be:

  • the payment of wages to people involved in administering the scheme, or
  • payments made for the purchase of a pension scheme asset.

Payments for the administration or management of the scheme should be made on an arm’s length, commercial basis. They will be treated as authorised payments. If a payment is more than would be expected to be paid on an arm’s length basis the amount over the expected arm’s length price will not be a scheme administration employer payment. Any excess will be an unauthorised employer payment, and taxed accordingly.

A scheme administration employer payment may be paid as a lump sum.

Loans

Loans to or in respect of a sponsoring employer or a former sponsoring employer are not scheme administration employer payments. There are particular rules for loans to or in respect of sponsoring employers - see PTM123200 

Shares

Payments made to acquire shares in a sponsoring employer are not scheme administration employer payments if either:

  • the market value of the shares in the sponsoring employer held by the pension scheme is 5% or more than the total value of the funds held by the pension scheme, or
  • the total market value of the shares held by the pension scheme in any and all of the sponsoring employers under the pension scheme is 20% or more than the total value of the funds held by the pension scheme.

Payments in either of these circumstances will be unauthorised employer payments and taxed accordingly. The part of the payment representing the acquisition of shares up to the 5% or 20% limit is a scheme administration payment and the part of the payment representing the excess is the unauthorised employer payment.

The 5% or 20% limits are only tested at the time the investment is made. The charge will not arise where less than 5% or 20% is invested and there is a subsequent fall in the fund value leading to the investment in equity becoming more than those limits.

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Scheme administration employer payments - paying tax

There are no specific provisions for the taxation of scheme administration employer payments, so the normal tax rules will apply to each type of payment. The scheme makes these payments without deducting tax.

However, this does not mean that these payments are not taxed. The normal income tax rules apply to each type of payment. For example, the payment out of a registered pension scheme in respect of a sponsoring employer for the purpose of paying wages to people involved in the administration of the scheme would be taxable as employment income.