HMRC guidance states that a refund in respect of a contribution which has been paid “such that there was no intention to make a payment to that extent or at all”, and which is rectified as soon as possible, will not be an unauthorised payment.
The circumstances under which HMRC has considered these conditions to have been met have historically been limited to those where the error has been entirely beyond the control of the member.
For example, a payroll error resulting in a contribution being paid to the wrong individual’s plan. In these circumstances, the inadvertent payment to the scheme is not considered to have been a pension contribution at all and can be refunded if identified promptly.
On the other hand, errors made by the member themselves have historically been considered as falling outside these genuine error provisions.
This means that any contribution “refunded” because, for example, it would cause the individual to face an annual allowance charge, would not only be an unauthorised payment, it would also fail to deal with the problem.
This is because the contribution is still treated as having been paid, so the member will still have to disclose liability and pay the charge.
Recent case law does offer a glimmer of hope.
In a first-tier tribunal ruling, the judge held that a mistake by the member in forgetting to cancel the standing order by which their pension contributions were paid should be treated as a “genuine error”.
Of course, this ruling cannot at this stage be assumed to extend to all member errors.
At the heart of this case was the argument that member forgetfulness could reasonably be considered as a genuine error.
So it would be a huge leap to assume that this judgement could be carried across to situations where clients pay contributions today in the mistaken belief their scheme will refund their money if they change their minds at a later date.
Effective date of contribution payment
The restrictions on paying refunds means it is vital that advisers understand the date contributions are “paid” for tax purposes, since any contribution landing in the wrong tax year cannot normally be repaid. Different payment methods are treated differently.
| Contribution Method | Deemed date of contribution |
| Member Cheque Payments | The date the cheque is received by the scheme as long as the contribution is accepted. |
| Member Debit/credit card payments | The date the payment details are received by the scheme |
| Member Direct debit payments | The date the member has authorised that funds may be taken from their account as long as the funds are actually received by the scheme |
| Member Payroll deduction under a Relief at Source scheme (e.g. GPP) | The date the employer’s cheque is received by the scheme or the date the employer has authorised that funds may be taken from its bank account. If there is a delay between deduction from pay and the date the scheme is authorised to take the money from the employer’s bank account then the date the scheme receives the money applies |
| Member Payroll deduction under a net pay scheme. (Occupational schemes only) | The date the contributions are deducted from the employee’s pay |
| Salary exchange contributions | These are legally employer pension contributions and are treated as such for payment date purposes |
| Employer contributions | The date the contribution is credited by the scheme. For the purposes of providing pension savings statements to members, the date used to deem when the contribution was paid may be a notional or due date. |
It is worth noting that net pay schemes can present particular challenges.
Scheme administrators do not always know the date contributions are deducted from members’ pay and employers are not always able to provide this information from member records. In particular this may be the case in schemes where there are multiple employers.
