SSAS Unauthorised Payments Charge: What Triggers It and the Cost

Every UK registered pension scheme — including a SSAS — operates within a defined set of authorised payment rules. When a payment or transaction falls outside those rules, HMRC treats it as an "unauthorised payment" and applies a layered set of tax charges that can reach 70% of the value involved. Understanding what triggers an unauthorised payment, and what the consequences are, is one of the most important compliance topics for SSAS member-trustees.

This guide summarises the regime set out in Part 4 of the Finance Act 2004 (principally sections 160–242 and Schedule 36) and the HMRC Pensions Tax Manual chapter PTM131000. It is general information rather than a substitute for specialist tax guidance on a specific transaction.

What is an "unauthorised payment"?

An authorised payment is a payment that falls within one of the categories permitted by the Finance Act 2004 — for example a pension benefit paid in the correct form, a pension commencement lump sum, a permitted loan to the sponsoring employer that meets the loanback rules, or an investment transaction on commercial terms. Any payment or transaction that does not fit one of these permitted categories is, by default, an unauthorised payment.

The same logic applies to indirect transactions. If a SSAS buys an asset at above market value, sells one to a connected party at below market value, or makes a loan to anyone other than the sponsoring employer (or makes one to the sponsoring employer that breaches the loanback rules), the difference between commercial value and what actually moved is treated as an unauthorised payment to the connected party.

The three layers of tax charge

1. Unauthorised payments charge — 40%

The recipient of the unauthorised payment — typically a member, but it can be a sponsoring employer or another connected party — pays an unauthorised payments charge of 40% of the amount or value involved. This is in addition to any other tax that would normally apply.

2. Unauthorised payments surcharge — 15%

An additional 15% surcharge applies where the total unauthorised payments to a recipient exceed 25% of the value of their fund (or scheme assets, depending on context) in a 12-month period. Combined with the base 40% charge, the member can therefore face a 55% effective rate on the full amount.

3. Scheme sanction charge — 40%, reduced to 15% when UPC paid

The scheme administrator faces a scheme sanction charge at a default rate of 40% of the unauthorised payment. Where the recipient has paid the unauthorised payments charge (the most common case in practice), the scheme sanction charge is reduced to 15%. Where the recipient is not chargeable to UK income tax on the payment, the default 40% rate applies. The charge is on the scheme, not the member, but it reduces the scheme assets available for benefits.

4. Deregistration risk

Persistent, large, or deliberate unauthorised payments can also trigger HMRC deregistration of the scheme. The scheme then loses its registered pension scheme tax-favoured status, and a one-off deregistration charge of 40% applies to the entire scheme value at deregistration. Deregistration is a worst-case outcome reserved for serious or repeated breaches.

Common triggers — what to watch for

Most unauthorised payments arise from a small set of recurring scenarios:

• Loans to a member or connected party. A SSAS may make a loan ONLY to the sponsoring employer, and only on terms meeting all five HMRC loanback rules. Any other loan — to a member, family, or unconnected third party — is an unauthorised payment.
• Purchase of residential property. A SSAS cannot hold residential property, beneficially or via certain indirect structures. Doing so creates an unauthorised payment equal to the purchase price plus annual scheme sanction charges on imputed rent. See our SSAS residential property guide.
• Purchase of tangible movable property. Vintage cars, fine wine, art and similar "taxable property" are blocked for similar reasons.
• Connected-party transactions at non-commercial terms. Buying a commercial property from a director or selling one to a family member, at anything other than independent market value, creates an unauthorised payment for the value difference.
• Loanback breaches. A loan to the sponsoring employer that fails any of the five conditions (50% net asset cap, prescribed minimum interest rate, five-year maximum term, equal annual repayments, first-charge security) becomes an unauthorised payment for the full loan amount. See our SSAS loanback rules guide.
• Benefits taken in the wrong form. Taking more than 25% of fund as a tax-free lump sum, accessing benefits before normal minimum pension age without a valid ill-health or protected age exception, or paying death benefits to non-permitted recipients can all create unauthorised payment exposure.

Worked example — non-compliant loanback

A SSAS with net assets of £400,000 lends £250,000 to the sponsoring employer, at 4% interest, over a six-year term, secured on plant machinery valued at £150,000.

• The loan exceeds 50% of net assets (£250,000 vs £200,000 limit) — fails Condition 1.
• The interest rate is below the prescribed minimum — fails Condition 2.
• The term exceeds five years — fails Condition 3.
• Security value (£150,000) is less than the loan amount — fails Condition 5.

The entire £250,000 loan is treated as an unauthorised payment to the sponsoring employer. The employer faces a 40% unauthorised payments charge of £100,000 (and potentially a 15% surcharge of £37,500 if the 25% threshold is breached). The scheme faces a 15% scheme sanction charge of £37,500. Combined exposure on a £250,000 loan: £175,000 — equivalent to 70% of the loan amount.

How HMRC discovers unauthorised payments

The scheme administrator must report all unauthorised payments to HMRC on the Event Report (Form AAC) and through the annual Pension Scheme Return. Members must declare any unauthorised payments charge on their Self Assessment return. HMRC also receives data from third parties — including conveyancers (for property), banks (for loans), and the Land Registry — and may match these against scheme returns.

Voluntary disclosure of an inadvertent breach generally results in significantly lower penalties than HMRC-discovered breaches. Anyone who realises an unauthorised payment may have occurred should seek immediate tax advice on disclosure and remediation.

Avoiding unauthorised payments

The structural defence is process: every transaction by the SSAS should be screened against the authorised payment categories before it happens, not after. In practice this means three habits:

1. Have a competent SSAS scheme administrator review every proposed transaction before funds move.
2. Document independent market value (RICS valuation for property, written quotes for goods, the HMRC-prescribed rate for loanback interest) at the date of each transaction.
3. Maintain accurate trustee minutes recording each decision and the basis for compliance with the relevant HMRC rule.

What to read next

• HMRC SSAS pension rules — the full HMRC framework that defines authorised vs unauthorised transactions.
• SSAS loanback rules — the five conditions a loan to the sponsoring employer must meet.
• SSAS investment rules — what a SSAS can and cannot hold.
• SSAS and residential property — why residential is blocked and what counts as taxable property.
• Who regulates SSAS pensions — HMRC, TPR, and the boundaries between them.

Important: Carry forward calculations can be complex, particularly if you have changed employers, held multiple pension schemes, or have any defined benefit pension entitlement. It is worth confirming carry forward calculations with a qualified adviser before making a large single-year contribution.

What Happens if You Exceed the Annual Allowance

If your total pension contributions — employer and personal, across all schemes — exceed your available Annual Allowance in a tax year, the excess is subject to an Annual Allowance charge. This is a tax charge levied on the individual member (not the employer), charged at the individual's marginal Income Tax rate.

For example, if a director has £60,000 of available Annual Allowance and the company contributes £80,000 in a single year, the £20,000 excess would be added to the individual's taxable income and taxed at their marginal rate — typically 40% or 45% for most directors in this position.

The charge effectively claws back the tax relief on the excess. This does not mean the excess contribution is returned; the money stays in the pension. But the tax advantage on that portion is neutralised.

HMRC allows a mechanism called "scheme pays" for large Annual Allowance charges — if the charge is at least £2,000 and the pension scheme is responsible for the excess, the scheme can pay the charge on your behalf in exchange for a reduction in your eventual pension benefits. For a SSAS, voluntary scheme pays is also available but requires trustee agreement.

The Money Purchase Annual Allowance (MPAA): £10,000

If you have already accessed your SSAS or another money purchase pension flexibly — for example, by taking income through flexi-access drawdown — the standard £60,000 Annual Allowance no longer applies to your money purchase pension contributions. Instead, you are subject to the Money Purchase Annual Allowance (MPAA), which is currently £10,000 per year.

The MPAA is designed to prevent individuals from recycling pension funds — taking money out in drawdown and immediately reinvesting it as a tax-relieved contribution. Once triggered, the MPAA applies permanently.

Actions that trigger the MPAA include:

• Taking income through flexi-access drawdown from any money purchase pension
• Receiving an uncrystallised funds pension lump sum (UFPLS)
• Purchasing a flexible (investment-linked) annuity where income can vary downwards

Taking your tax-free cash lump sum alone (without also taking income from drawdown) does not trigger the MPAA, provided the rest of the uncrystallised fund remains in drawdown but no drawdown income has been taken.

Critical Point: If you are still contributing to your SSAS — particularly through large employer contributions — triggering the MPAA could have serious consequences, limiting your annual contributions to just £10,000. Plan carefully before accessing pension funds flexibly if you intend to continue making significant contributions.

The Lifetime Allowance: Abolished from April 2024

Until April 2023, there was a limit on the total amount of pension savings you could build up in your lifetime before facing a tax charge — the Lifetime Allowance (LTA). In its final form, the LTA was £1,073,100.

The LTA has now been abolished. From 6 April 2024, there is no lifetime limit on the amount of pension wealth you can accumulate. This is a significant change for higher earners who were previously managing their SSAS contributions carefully to avoid the LTA charge.

However, the abolition of the LTA does not mean there are no limits on pension benefits. Instead, HMRC has introduced two new lump sum allowances:

For most directors, the practical effect is that the 25% tax-free cash entitlement is now capped at £268,275 — regardless of total fund size. Funds above this threshold that are drawn as lump sums will be subject to Income Tax at the individual's marginal rate. Pension income taken through drawdown remains subject to Income Tax in the usual way.

Contribution Rules in Practice: A Summary for Directors

Frequently Asked Questions

What is the SSAS Annual Allowance for 2025/26?

The standard Annual Allowance is £60,000 per member, per tax year. This applies to the total of all employer contributions, member personal contributions, and HMRC tax relief into the scheme (Finance Act 2004, s.228, as amended by Finance (No. 2) Act 2023). The allowance is per individual, not per scheme — it covers all your registered pensions combined.

Can I carry forward unused SSAS Annual Allowance?

Yes. You can carry forward unused Annual Allowance from the previous three tax years, provided you were a member of a registered pension scheme in each of those years. With full carry forward, a director could potentially contribute up to £240,000 in a single tax year (current year £60k + three prior years £60k each), subject to the company being able to support the contribution under the wholly-and-exclusively rule.

What is the Tapered Annual Allowance for SSAS?

If your adjusted income exceeds £260,000 in a tax year, your Annual Allowance is tapered. For every £2 of income over £260,000, the allowance reduces by £1, down to a floor of £10,000 (for adjusted income of £360,000 or more). The taper is calculated per tax year and depends on both threshold income and adjusted income tests.

Can my company contribute more to my SSAS than I earn in salary?

Yes — employer contributions are not capped by your salary. Personal contributions are limited to your relevant UK earnings (typically salary, not dividends), but employer contributions are limited only by the Annual Allowance and the company’s ability to satisfy HMRC’s wholly-and-exclusively test. This is why most director-shareholder SSAS contributions come from the company, not from the director personally.

Are SSAS contributions tax-deductible for my company?

Yes. Employer contributions to a SSAS are normally deductible against Corporation Tax in the accounting period they are paid, provided they meet HMRC’s wholly-and-exclusively test — the contribution must be made for genuine business purposes, not pure tax avoidance. A company paying Corporation Tax at 25% saves £15,000 of tax on a £60,000 SSAS contribution.

Do I get personal Income Tax relief on SSAS contributions?

Personal contributions get Income Tax relief at your marginal rate. Basic rate relief (20%) is added at source by the SSAS administrator; higher and additional rate relief is claimed via Self Assessment. Employer contributions don’t generate personal tax relief because the company has already received Corporation Tax deduction — they go into the scheme gross.

Is there a lifetime limit on SSAS contributions?

The Lifetime Allowance was abolished in April 2024 and replaced with the Lump Sum Allowance (£268,275) and the Lump Sum and Death Benefit Allowance (£1,073,100). These limit the tax-free lump sums you can take, not the total fund value or the total contributions you can make over your lifetime. There is no longer a cap on how large your SSAS pot can grow.

Can my SSAS receive contributions from more than one company?

Yes, if you are a member or director of more than one limited company. Each sponsoring employer can make contributions, subject to your overall Annual Allowance across all schemes. The contributions need to be made on a wholly-and-exclusively basis from each contributing company — the contribution amount must be defensible as remuneration for services rendered to that specific company.

Key Point: The £60,000 Annual Allowance applies per individual member of the SSAS. If your SSAS has three director members, the scheme as a whole could potentially receive up to £180,000 in combined contributions — £60,000 per person — subject to each individual staying within their own allowance.

Disclaimer: This article is for educational purposes only and does not constitute financial advice. SSAS pensions are corporate pension schemes registered with HMRC and overseen by The Pensions Regulator (TPR), and do not require FCA regulation. Tax rules are subject to change and depend on individual circumstances. The information in this article is based on our understanding of HMRC rules for the 2025/26 tax year.