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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. »Ê¹ÚÌåÓýappy 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. »Ê¹ÚÌåÓýappre 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. »Ê¹ÚÌåÓýapp 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.

»Ê¹ÚÌåÓýapp 5% or 20% limits are only tested at the time the investment is made. »Ê¹ÚÌåÓýapp 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

»Ê¹ÚÌåÓýappre are no specific provisions for the taxation of scheme administration employer payments, so the normal tax rules will apply to each type of payment. »Ê¹ÚÌåÓýapp scheme makes these payments without deducting tax.

However, this does not mean that these payments are not taxed. »Ê¹ÚÌåÓýapp 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.