HMRC rules define payments that can be made without tax penalties. These are known as authorised payments, and may be authorised member payments or authorised employer payments.

Authorised member payments:

• pension or lump-sum payments at retirement;
• pension or lump-sum death benefits;
• recognised transfers; or
• administration
• Authorised employer payments are any employer payment detailed in HMRC regulations, such as:
• authorised surplus payments;
• compensation payments;
• authorised employer loans; or
• scheme administration

An unauthorised payment is simply a payment that is not authorised and this type of payment will be subject to various charges.

Unauthorised payments charge – an income tax charge applied at 40%

Unauthorised payments surcharge – When the value of all unauthorised payments in a year exceed the surcharge threshold. The threshold is 25% of the value of the member’s benefits under the scheme or t 25% of the value of a pension scheme’s assets for an employer. The charge is 15%.

Scheme Sanction charge – The scheme administrator makes one chargeable payment in any one year is subject to this charge. The charge is 40% but where the recipient of the unauthorised payment has paid the unauthorised payment charge, the tax due is reduced by the lower of:

• The amount of the unauthorised payment charge, OR
• 25% of the scheme chargeable payments

De-registration charge – If HMRC withdraws the registration of the pension scheme a charge is due of 40% of the total value of funds held by the scheme immediately.