SSAS Unauthorised Payments: Understanding the Risks and How to Avoid Them

SSAS Unauthorised Payments: The Complete Risk Guide

Of all the compliance risks facing SSAS trustees, unauthorised payments represent the most financially damaging. A single unauthorised payment can trigger tax charges totalling 55% or more of the amount involved, and in the most serious cases can lead to the scheme being de-registered — resulting in an immediate 40% tax charge on the entire scheme fund.

Understanding what constitutes an unauthorised payment — and how to avoid inadvertently making one — is therefore one of the most important areas of knowledge for any SSAS trustee.

In our experience, the vast majority of unauthorised payment issues arise not from deliberate avoidance but from a genuine lack of understanding of the rules. This guide aims to give trustees the knowledge they need to operate safely.

What Is an Unauthorised Payment?

An unauthorised payment is any payment made by a registered pension scheme that does not fall within the categories of "authorised payments" defined in the Finance Act 2004. Put simply: if a payment from the SSAS is not one of the prescribed authorised types, it is unauthorised — regardless of whether the trustees intended any wrongdoing.

Authorised payment types include:

• Authorised member payments (pension income, tax-free lump sums, defined benefit lump sum death benefits)
• Authorised employer payments (refunds of contributions in specific circumstances)
• Scheme administration payments (fees to administrators, advisers, and service providers)

Everything else is, by default, an unauthorised payment.

Common Examples of Unauthorised Payments in SSAS

The following situations commonly give rise to unauthorised payment issues in SSAS schemes:

• Acquiring residential property: If the SSAS purchases or otherwise acquires an interest in residential property, this constitutes holding "taxable property" and is treated as an unauthorised payment to the member
• Loans to members: Direct loans to scheme members (as opposed to the sponsoring employer) are not permitted and constitute unauthorised payments
• Loans to employer exceeding the limit: Loans to the sponsoring employer are permitted subject to conditions, but loans that breach these conditions (including the 50% of fund value limit) may be treated as unauthorised
• Benefits paid early: Pension benefits paid before the minimum pension age (currently 55, rising to 57 in 2028) without meeting the ill-health conditions
• Benefits paid in non-authorised form: Payments that do not meet the requirements for authorised benefit forms
• Connected party transactions at non-market value: Transactions with connected parties at less than market value effectively involve a "transfer of value" from the scheme, which HMRC may treat as an unauthorised payment
• Personal use of scheme assets: Any use of scheme assets (including property) by members or connected parties for personal benefit

The Unauthorised Payment Tax Charges

When an unauthorised payment occurs, two separate tax charges can arise:

Unauthorised Payment Charge

The member who received the unauthorised payment (or on whose behalf the payment was deemed to be made) faces a tax charge of 40% of the payment amount. This is charged on the member personally and must be reported and paid via self-assessment.

Unauthorised Payment Surcharge

If the unauthorised payment (alone or combined with other unauthorised payments in a three-year window) exceeds 25% of the fund value, an additional surcharge of 15% applies to the member. This takes the total personal charge to 55%.

Scheme Sanction Charge

In addition to the personal charges on the member, the scheme itself may face a scheme sanction charge of 40%. However, this charge is reduced by the amount of tax already paid by the member — meaning the total combined charge is designed not to exceed 70% in most cases.

"When we explain unauthorised payment charges to trustees for the first time, the reaction is almost always the same — disbelief. A 55% tax charge on what might have seemed like a minor or inadvertent mistake is genuinely severe. The lesson is to take compliance seriously before the fact, not after." — Matt Lenzie

Residential Property: The Most Common Trap

The most frequent cause of unauthorised payment issues in SSAS schemes is the acquisition of residential property. This might seem obvious — commercial property only, not residential — but the boundaries can be more nuanced than they first appear.

Examples of properties that might appear commercial but contain a residential element include:

• Mixed-use properties with a flat above a shop
• Farmhouses on agricultural land
• Former residential buildings converted for commercial use but retaining planning for residential reversion
• Hotels with management accommodation
• Care homes with staff residential quarters

Before any SSAS property acquisition, trustees must satisfy themselves that the property is purely commercial in nature. Where there is any doubt, specialist legal advice should be sought before proceeding.

For guidance on qualifying property types, see our article on choosing the right property type for your SSAS.

Employer Loans: Getting the Conditions Right

SSAS schemes have the unique ability to lend money to the sponsoring employer — a feature not available to SIPP holders and one that makes SSAS particularly attractive to owner-managed businesses. However, these loans must comply with strict conditions to avoid being treated as unauthorised payments:

• The loan must not exceed 50% of the scheme's net asset value
• The loan must be secured by a first charge over an asset of equal or greater value than the loan
• The interest rate must be at least the official rate of interest (currently 2.25% per annum)
• The loan must not exceed 5 years in duration (with the possibility of one extension)
• Capital and interest must be repaid in equal instalments

Failure to meet any of these conditions at the outset — or allowing conditions to lapse during the loan period — can result in the loan being reclassified as an unauthorised payment.

Reporting Unauthorised Payments to HMRC

If an unauthorised payment has occurred, the scheme administrator has a legal obligation to report it to HMRC within 90 days. Failure to report is a separate compliance offence attracting its own penalties.

Upon becoming aware of an unauthorised payment, the steps to take are:

• Notify the scheme administrator immediately
• Take specialist pension law advice on the implications
• Report the event to HMRC within 90 days via an event report
• Submit an Accounting for Tax return to pay any scheme-level charges
• Ensure the member reports the payment on their personal self-assessment return

In some cases, HMRC may exercise discretion where there has been a genuine error and swift corrective action. This is not guaranteed, but prompt and transparent engagement with HMRC is always the best approach.

Preventing Unauthorised Payments: Trustee Best Practices

• Only acquire commercial property — never residential, even partially
• Never make loans to members (only to the sponsoring employer, subject to conditions)
• Get independent market valuations for all connected party transactions
• Do not allow personal use of any scheme assets
• Monitor the 50% borrowing limit regularly
• Only pay benefits when members have reached the minimum pension age or meet the ill-health criteria
• Consult the scheme administrator before undertaking any unusual transactions

See our SSAS HMRC compliance guide for a comprehensive overview of trustee obligations.

Key Takeaways

• An unauthorised payment is any payment from a SSAS that does not fall within the authorised categories defined by HMRC
• Personal tax charges of up to 55% can apply to members who receive (or are deemed to have benefited from) unauthorised payments
• The scheme itself may also face a scheme sanction charge of up to 40%
• Residential property, member loans, and early benefit payments are the most common triggers
• Unauthorised payments must be reported to HMRC within 90 days
• Prevention through compliance awareness and professional advice is far cheaper than dealing with the consequences

Get Professional SSAS Compliance Advice

The risks around unauthorised payments are one of the main reasons we always recommend working with a qualified SSAS administrator and specialist advisers. The combination of professional oversight and trustee education is the most effective protection available.

Contact our team to discuss your SSAS compliance requirements. For related reading, see our guides on scheme sanction charges and SSAS HMRC compliance.