Loan from pension fund is unauthorised payment

In Nilebond Limited v HMRC [2022] TC08676 the First Tier Tribunal (FTT) dismissed an appeal against a pension scheme's unauthorised payment charge in respect of an unauthorised loan made by the scheme to the sponsoring employer. The loan should have been secured when paid and that condition was not met.

The tax rules split all payments made by registered pension schemes into authorised payments and unauthorised payments.

• Authorised payments are defined in the tax legislation. All other payments are Unauthorised payments.

Where a pension scheme makes an unauthorised payment to a scheme member or sponsoring employer three separate tax charges can arise:

• An unauthorised payment charge of 40% on the member/employer.
• A further potential unauthorised payment surcharge of 15% on the member/employer.
• An unauthorised scheme charge of 40%

Nilebond Limited was the administrator of a registered employer pension scheme. The sponsoring employer was Sauvage Limited.

• In February 2017 the pension scheme made a £37,500 loan subject to a floating charge to Sauvage which was repaid in 2018.
• The charge was retrospectively registered with Companies House in August 2019 after Nilebond had achieved a county court extension to the 21-day time limit for registering the charge.
• In March 2019 HMRC issued Nilebond with a £15,000 scheme sanction charge on the basis that the loan was an Unauthorised employer payment.
• Nilebond appealed asking for a statutory review which upheld the decision. Nilebond appealed to the tribunal.

The FTT determined that there were two issues to consider:

• Was the loan an unauthorised employer payment or an authorised employer loan?
  • This turned on whether the charge had to have been registered at Companies House under s.859A of the Companies Act 2006 to be an authorised loan.
• Was the loan nevertheless an authorised employer loan because the charge had been registered after the loan had been repaid, or did the loan have to have been registered within 21 days of being made?

The FTT dismissed the appeal concluding that the loan was not an authorised loan:

• Section 179(6) of the Companies Act provides that for a loan to be an authorised employer loan it must be secured by a charge which is of adequate value. An unregistered charge is not secured as it is always void against any other creditor.
• Sch30 para 1(4) of the Companies Act provides that for the loan to be authorised it must take priority over any other charge over the assets whereas an unregistered charge is not enforceable against a liquidator, administrator or other credits so cannot take priority over any other charge.
• The later registration of the charge did not cause it to be “secured by a charge of adequate value” despite the extension of the time limit. The wording of the charge did not make it fully retrospective and by the time the charge was registered the loan no longer existed.

Useful guides on this topic

Pensions: Unauthorised payment charges
What is a pension unauthorised payment? When does a tax charge arise? Who pays the charge? 

Pensions: Tax rules and planning
What tax rules apply to pensions? What tax relief is available? What tax charges can arise? What planning opportunities are there? 

Pensions: Tax charge for excess contributions
When does a tax charge arise for excess pension contributions? What are taxpayers' responsibilities under Self Assessment? 

Pension contributions: Personal or company?
Is it more tax efficient to pay pension contributions personally or via your own company?

External link

Nilebond Limited v HMRC [2022] TC08676