PAYE72045 - PAYE operation: payments for PAYE purposes: occupational retirement benefit schemes

In general terms, occupational retirement benefit schemes are set up by an employer to provide pension or death benefits in respect of its employees

The following are chargeable to tax under ITEPA 2003 and PAYE should be applied

  • pensions and certain lump sums paid directly from a registered pension scheme
  • annuities paid to registered pension scheme members by an insurance company under contracts securing the benefits
  • pensions and certain lump sums from employer-financed retirement benefit schemes

The Insurance Policyholder Taxation Manual ITPM4000 onwards gives more information.

The recipient is usually liable for any tax charges, and will pay tax at the England and Northern Ireland, or Scottish or Welsh rates depending on their residency status.

The Income Tax Residency Status screen on NPS will display ‘Scottish' or 'Welsh' taxpayer for the tax year where the individual is liable to pay tax at the Scottish or Welsh rate(s) and their tax code will have an S (Scottish) or C (Welsh) prefix. Further information about Scottish tax is given at PAYE100035 and for Welsh tax at PAYE1000040.

Pensions to non-UK residents

PAYE usually applies to pensions payable to non-UK residents but see Employment Income Manual at EIM75080.

Relief may be allowable under a Double Taxation Agreement, see EIM75070.

Pension death benefit for unmarried minor child

Some pension death benefits payable to beneficiaries are taxable, and payment is through PAYE, see Pensions Tax Manual PTM072300. Where you are notified of the commencement of payment of a taxable pension to a dependent child and it is clear that the child has full title to the pension, a PAYE Service record should be created for that pension and a code issued. If the child is below age 16, correspondence should be addressed to the parent or guardian, whose details should be recorded as the Capacitor.

Send the case to HMRC Trusts where

  • a pension under such a scheme is paid in respect of an unmarried minor child, and
  • there is doubt that the child has title to the pension

Non-pension payments

Payments from a registered pension scheme that do not meet the authorised payment conditions may be unauthorised payments (Pensions Tax Manual PTM130000). The employee is chargeable to tax in the year the authorised payment is made, but that tax is unlikely to be collected by PAYE.

When you become aware of such payments, inform HMRC Pension Schemes Services (PTM011300) before including the payment in the calculation of the employee’s liability or telling the individual to include the payment in their self assessment.