Explanatory Note

(This note is not part of the Regulations)

These Regulations make provision about the tax treatment of unauthorised payments made under public service pension schemes in connection with the Public Service Pensions and Judicial Offices Act 2022 (“PSPJOA 2022”). They also make provision consequential on the abolition of the lifetime allowance.

Part 2 deals with unauthorised payments. Registered pension schemes are permitted, within certain limits, to pay lump sums to their members. If these limits are exceeded, the resulting payment is subject to tax as an unauthorised payment. These Regulations deal with unauthorised payments that were made by public service pension schemes where, as a result of the operation of PSPJOA 2022, the amounts of those unauthorised payments have changed. The Regulations refer to these payments as “historic payments”. The operation of PSPJOA 2022 can also lead to schemes making further payments, for the same reason as a historic payment, which are referred to in the Regulations as “top-up payments”. These terms are defined in regulation 3.

Regulation 5 provides for scheme administrators and individuals to be jointly and severally liable to the unauthorised payments charge in respect of these top-up payments. It also reduces the scheme sanction charge paid in respect of them to 15% and excludes payments of compensatory interest from its scope.

The operation of PSPJOA 2022 also means that tax may have been overpaid on historic payments. These Regulations provide for scheme administrators to recover these overpayments (defined as “excess amounts” in regulation 4), either by offsetting them against the same tax charge in respect of a top-up payment or, where the conditions in regulation 7(4) are met, by reclaiming them. These excess amounts, and interest on them, cannot be recovered in any other way, although scheme administrators can still use the process in regulation 20 of the Public Service Pension Schemes (Rectification of Unlawful Discrimination) (Tax) Regulations 2023 to apply for a repayment of an overpaid scheme sanction charge that cannot be recovered under these Regulations.

Regulation 6 requires a scheme administrator to deduct the unauthorised payments charge arising on a top-up payment, reduced by any recoverable excess amounts and interest, from the payment made to the recipient. This deduction does not reduce the amount that is an unauthorised payment. If a deduction is not made, the top-up payment is to be grossed-up to reflect the additional benefit to the recipient of the payment.

Chapter 3 deals with administration. Regulation 9 provides for returns, which must contain the information specified in the Schedule. If a scheme administrator owes tax as a result of these Regulations, an assessment can be made under regulation 10. If they are owed a repayment, they are entitled to be paid that amount unless HMRC issues a notification in accordance with regulation 11 or an assessment under regulation 12. These assessments and notifications may be withdrawn in accordance with regulation 13.

Regulation 14 provides for specified provisions of the Taxes Management Act 1970 and the Finance Act 2004 not to have effect in respect of top-up payments. The remaining provisions of Part 2 deal with other administrative matters.

Part 3 makes further provision in connection with the operation of PSPJOA 2022 and the abolition of the lifetime allowance. Regulation 19 allows an application for a fixed or individual protection 2016 reference number by a person with remediable service to be validly made until 6th April 2027, rather than 6th April 2025. Regulation 20 makes provision about the contents of a notice requiring a scheme to pay an annual allowance charge, updates the definition of certain defined benefits lump sum death benefits, extends time limits so that they are consistent with these Regulations and aligns the deadline for provision of information by pension schemes about individual protection 2016 with regulation 19.

Regulation 1(3) to (6) provides for these Regulations to have retrospective effect. This retrospection is authorised by section 11(4)(a) of the Finance Act 2022 and regulations 6(4), 9(3), 14(3), 17(2) and 18(2) make specific provision in connection with it.

A Tax Information and Impact note covering this instrument was published on 27th October 2021 alongside the Finance Bill and is available on the website at https://www.gov.uk/government/collections/tax-information-and-impact-notes-tiins. It remains an accurate summary of the impacts that apply to this instrument.