Authorised and unauthorised payments
Produced in partnership with Mark Smith and Georgina Wardrop of Taylor Wessing LLP
Authorised and unauthorised payments

The following Pensions guidance note Produced in partnership with Mark Smith and Georgina Wardrop of Taylor Wessing LLP provides comprehensive and up to date legal information covering:

  • Authorised and unauthorised payments
  • Authorised payments v unauthorised payments
  • Types of unauthorised payments
  • Unauthorised member payments
  • Unauthorised employer payments
  • Payments specifically identified as unauthorised member payments
  • Payments specifically identified as unauthorised employer payments
  • Exceptions in special circumstances

Authorised payments v unauthorised payments

A pension scheme that has registered with HM Revenue & Customs (HMRC) benefits from favourable UK tax treatment. Broadly, this means that any income and gains arising in the hands of the UK registered pension scheme on its investment activities is exempt from UK taxation. For members, a registered pension scheme represents a tax efficient investment vehicle to provide for an income in retirement subject to HMRC’s annual and lifetime allowances.

A UK registered pension scheme must satisfy certain conditions. Among other things, on registration, the scheme administrator must confirm that the pension scheme meets all the criteria to be registered as a pension scheme under FA 2004. Importantly, as part of this, the scheme must confirm that the ‘instruments or agreements’ by which the pension scheme is established do not entitle any person to unauthorised payments. For information on the registration requirements, see Practice Note: Registration of pension schemes.

To the extent that an unauthorised payment arises:

  1. tax charges are generally imposed on both the recipient and the scheme, although individuals and companies can apply to HMRC for relief from the tax charges in certain circumstances. An unauthorised payment can give rise to up to three tax charges:

    1. unauthorised payments charge

    2. unauthorised payments surcharge

    3. scheme sanction charge

  2. HMRC must be notified of this in