PAYE for pension schemes

By Tolley in association with Vince Ashall
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The following Employment Tax guidance note by Tolley in association with Vince Ashall provides comprehensive and up to date tax information covering:

  • PAYE for pension schemes
  • Introduction
  • Deductions from pensions
  • Real Time Information (RTI)

Introduction

In general terms, running PAYE for pension schemes is no different than running PAYE for employees. Pensions are treated as income for PAYE and so pensioners are issued with a tax code (see the Notices of coding guidance note) and tax is deducted accordingly.

The major difference between a ‘pensioner payroll’ and an ‘employee payroll’ is that no National Insurance contributions (NICs), neither employee nor employer, are deducted from pensions (this is on the assumption that the pension is being paid from a pension scheme registered with HMRC).

Deductions from pensions

Apart from NICs, other deductions, with one further exception, can be made from pension payments in the same way as they are taken from earnings.

Attachment of earnings orders (AEOs)

Pensions are treated as earnings for AEO purposes. Thus, AEOs may be received in respect of pensioners.

Voluntary deductions

The pension payer needs authorisation from the pensioner in order to take voluntary deductions from the pension, see the Income and deductions guidance note.

Student loans

This is the further exception mentioned above. The calculation for a student loan deduction (SLD) is based on the earnings that are used to determine the amount of Class 1 NICs due (see the Student loan deductions guidance note). As a pension is not earnings for Class 1 NICs purposes, no SLD can be made from a pension payment.

Real Time Information (RTI)

Pension payers have to make returns to HMRC under the RTI process in the same manner as employers. This means submitting a Full Payment Submission (FPS) on or before payday (see the RTI ― reporting ‘on or before’ time of payment guidance note). It is unlikely that an Employer Payment Summary (EPS) will need to be made, since

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