A charge to income tax, to be known as the unauthorised payments charge, arises where an unauthorised payment is made by a registered pension scheme.

If more than one person is liable to the unauthorised payments charge in respect of an unauthorised payment, those persons are jointly and severally liable to the charge in respect of the payment.

The rate of the charge is 40% in respect of the unauthorised payment.

The Treasury may by order amend subsection (5) so as to vary the rate of the unauthorised payments charge.

An order under subsection (6) may make provision for there to be different rates in different circumstances.

An unauthorised payment is not to be treated as income for any purpose of the Tax Acts.

A charge to income tax, to be known as the unauthorised payments surcharge, arises where a surchargeable unauthorised payment is made by a registered pension scheme.

If more than one person is liable to the unauthorised payments surcharge in respect of a surchargeable unauthorised payment, those persons are jointly and severally liable to the surcharge in respect of the payment.

The rate of the charge is 15% in respect of the surchargeable unauthorised payment.

The Treasury may by order amend subsection (6) so as to vary the rate of the unauthorised payments surcharge.

An order under subsection (7) may make provision for there to be different rates in different circumstances.

This section identifies which unauthorised member payments made by a registered pension scheme F14to or in respect of a person who is or has been a member of the pension scheme are surchargeable.

If the surcharge threshold is reached before the end of the period of 12 months beginning with a reference date, each unauthorised member payment made F15to or in respect of the person in the surcharge period is surchargeable.

The first reference date is the date on which the pension scheme first makes an unauthorised member payment F16to or in respect of the person.

Each subsequent reference date is the date, after the end of the previous reference period, on which the pension scheme next makes an unauthorised member payment F17to or in respect of the person.

The previous reference period is the period of 12 months beginning with the previous reference date or, if the surcharge threshold is reached in that period, is the surcharge period ending with the date on which it was reached.

The surcharge threshold is reached if the unauthorised payments percentage reaches 25%.

The unauthorised payments percentage is the aggregate of the percentages of the pension fund used up by each unauthorised member payment made by the pension scheme F18to or in respect of the person on or after the reference date.

The percentage of the pension fund used up on the occasion of an unauthorised member payment is—

$\frac{\mathrm{UMP}}{\mathrm{VR}}\times \mathrm{100}$

where—

UMP is the amount of the unauthorised member payment, and

VR is an amount equal to the F19aggregate of the value of the member's rights under arrangements relating to the member under the pension scheme when the unauthorised payment is made (or, if the unauthorised member payment is made after the member has died or has otherwise ceased to be a member of the pension scheme, at the date when the member died or otherwise ceased to be a member).

The value of a scheme pension or lifetime annuity is—

$\mathrm{RVF}\times \mathrm{ARP}$

where—

RVF is the relevant valuation factor (see section 276), and

ARP is an amount equal to the annual rate of the pension or annuity on the date.

Rights are uncrystallised if the member is not entitled to the present payment of benefits in respect of the rights.

The member is to be treated as entitled to the present payment of benefits in respect of the sums and assets representing the F25member's drawdown pension fund F26or the member's flexi-access drawdown fund.

If this subsection applies, the value of the member’s uncrystallised rights under the arrangement on the date is the amount which would, on the valuation assumptions (see section 277), be available for the provision of benefits in respect of those rights if the member became entitled to benefits in respect of those rights on the date.

If this subsection applies, the value of the member’s uncrystallised rights under the arrangement on the date is—

$\left(\mathrm{RVF}\times \mathrm{ARP}\right)+\mathrm{LS}$

where—

RVF is the relevant valuation factor (see section 276),

ARP is the annual rate of pension to which the member would, on the valuation assumptions, be entitled under the arrangement on the date if, on the date, the member acquired an actual (rather than a prospective) right to receive a pension in respect of the rights, and

LS is the amount of any lump sum to which the member would, on the valuation assumptions, be entitled under the arrangement on the date (otherwise than by way of commutation of pension) if, on the date, the member acquired an actual (rather than a prospective) right to payment of a lump sum in respect of the rights.

Subsection (4) is relevant if, in any circumstances, cash balance benefits may be provided to or in respect of the member under the arrangement.

Subsection (5) is relevant if, in any circumstances, money purchase benefits other than cash balance benefits may be provided to or in respect of the member under the arrangement.

Subsection (6) is relevant if, in any circumstances, defined benefits may be provided to or in respect of the member under the arrangement.

This section identifies which unauthorised employer payments made by a registered pension scheme to or in respect of a F28person who is or has been a sponsoring employer are surchargeable.

If the surcharge threshold is reached before the end of the period of 12 months beginning with a reference date, each unauthorised employer payment made to or in respect of the F29person in the surcharge period is surchargeable.

The first reference date is the date on which the pension scheme first makes an unauthorised employer payment to or in respect of the F30person.

Each subsequent reference date is the date, after the end of the previous reference period, on which the pension scheme next makes an unauthorised employer payment to or in respect of the F31person.

The previous reference period is the period of 12 months beginning with the previous reference date or, if the surcharge threshold is reached in that period, is the surcharge period ending with the date on which it was reached.

The surcharge threshold is reached if the unauthorised payments percentage reaches 25%.

The unauthorised payments percentage is the aggregate of the percentages of the pension fund used up by each unauthorised employer payment made by the pension scheme to or in respect of the F32person on or after the reference date.

The percentage of the pension fund used up on the occasion of an unauthorised employer payment is—

$\frac{\mathrm{UEP}}{\mathrm{AA}}\times \mathrm{100}$

where—

UEP is the amount of the unauthorised employer payment, and

AA is an amount equal to the aggregate of the amount of the sums and the market value of the assets held for the purposes of the pension scheme at the time when the unauthorised employer payment is made.