PTM145200 - Other authorised payments: authorised employer payments: authorised surplus payments
Glossary |
Authorised surplus payment
Conditions for an authorised surplus payment
Employer dissolved - bona vacantia
Taxing authorised surplus payments
Accounting for and paying the authorised surplus payments charge
Authorised surplus payment
Sections 175 and 177 Finance Act 2004
An authorised surplus payment is a type of authorised employer payment that can be made under the tax rules for registered pension schemes. It is a payment:
- made to a sponsoring employer of a registered pension scheme that is an occupational pension scheme, and
- that meets certain conditions - see Conditions for an authorised surplus payment below.
The only registered pension schemes that are likely to have surplus funds are occupational pension schemes. For example, it is possible that such a scheme could have limits on the amount of pension benefits that will paid to or in respect of the members of that scheme and, whilst funding for those targeted benefits, it is possible that the value of the scheme’s funds could exceed the amount of the scheme’s liabilities. Where such a scheme does have surplus funds, it is possible that rules of the scheme will allow that surplus to be returned to an employer in relation to the scheme.
Conditions for an authorised surplus payment
The conditions for an authorised surplus payment are determined by:
- whether the occupational pension scheme is a continuing scheme or winding-up, and
- whether or not the scheme is subject to requirements on payments to the employer under the Pensions Act 1995.
However, a surplus payment to a sponsoring employer relating solely to the death of a member must meet additional requirements for it to be an authorised surplus payment. For example, such a payment will not be an authorised surplus payment where the deceased member was connected with the sponsoring employer at the date of his or her death.
See PTM145300 for the full conditions.
Employer dissolved - bona vacantia
An occupational pension scheme might have surplus funds but, because of a company dissolution, no sponsoring employer in relation to the scheme to which the surplus can be returned. Where this occurs, the surplus funds could be taken by either the Crown, Duchy of Lancaster or Duke of Cornwall as 'bona vacantia'.
Surplus funds taken as ‘bona vacantia’ are not unauthorised employer payments and nor does the authorised surplus payments charge apply in respect of such funds.
Taxing authorised surplus payments
Section 207 and Paragraph 47 Schedule 36 Finance Act 2004
How an authorised surplus payment is taxed depends on the circumstances in which it is made.
None of the following about the application of the authorised surplus payments charge applies where:
- the authorised surplus payment is made on or after 20 March 2014, and
- the payment is funded (directly or indirectly) by a surrender of, or an agreement to surrender, benefits or rights which is treated as an unauthorised member payment.
Instead of the authorised surplus payments charge applying other tax charges will apply in relation to the surrender of benefits or rights from which the authorised surplus payment is derived.
PTM133300 has more details about the surrender of benefits or rights being treated as an unauthorised member payment.
PTM134000 onwards has details of the tax charges in respect of unauthorised member payments.
Otherwise, the authorised surplus payment to a sponsoring employer is subject to an income tax charge called the authorised surplus payments charge. However, the charge does not apply if:
- apart from the authorised surplus payments charge, the sponsoring employer receiving the payment would have been exempt, or entitled to claim exemption, from income tax or corporation tax in respect of the payment, or
- the sponsoring employer receiving the payment is a charity (see PTM073900) or
- the authorised surplus payment is being made in relation to a scheme that started winding-up before 19 March 1986.
The person liable for the charge is the scheme administrator of the scheme making the payment. The scheme administrator remains liable even if they, or the sponsoring employer, or both, are not resident or domiciled in the United Kingdom.
The amount of tax due is 25% of the amount of the authorised surplus payment.
The authorised surplus payments charge is a free-standing tax on the scheme administrator and an authorised surplus payment is not to be treated as income under any other tax provision. This means that the tax is due even if the employer receiving the payment is making a loss.
Accounting for and paying the authorised surplus payments charge
Section 254 Finance Act 2004
The Registered Pension Schemes (Accounting and Assessment) Regulations 2005 -SI 2005/3454
Where scheme administrators have a liability to the authorised surplus payment charge they must account for and pay the tax due by using the Accounting for Tax Return.
More information on the process of accounting for and paying the tax to HMRC can be found at PTM162100.