Who is liable for income tax on payments from an employer-financed retirement benefit scheme under section 585?

Under section 585 of the Income Tax (Earnings and Pensions) Act 2003, the person liable for income tax is the employee or former employee in connection with whom the employer-financed retirement benefit scheme was established. The liability attaches to the employee regardless of who actually receives the payment from the scheme.

What happens if a payment from an employer-financed retirement benefit scheme is made to an ex-spouse?

Where a payment from an employer-financed retirement benefit scheme is made to an ex-spouse of the employee, the ex-spouse becomes the person liable for the income tax on that payment. This applies where the payment arises from arrangements such as those following a divorce between the employee and their former spouse.

Can the tax liability under section 585 be shifted by directing payments to a third party?

No. Section 585 ensures that the identity of the actual recipient does not determine the tax liability. Even if the payment is directed to a third party such as a family member, the income tax charge still falls on the employee or ex-spouse as appropriate, preventing the liability from being shifted by redirecting payments.

How does section 585 apply when payments are made to someone other than the employee?

If a payment from an employer-financed retirement benefit scheme is paid directly to someone other than the employee, such as their child, the employee remains liable for the income tax. The determining factor is the employment connection to the scheme, not who physically receives the funds from the scheme.

Income Tax (Earnings and Pensions) Act 2003 section 585

Person liable for tax

Section 585 identifies who is liable to pay the tax when payments are made from employer-financed retirement benefit schemes.

This section determines which individual is chargeable to income tax on payments from employer-financed retirement benefit schemes.
The person liable for the tax is the employee (or former employee) in respect of whom the scheme was established.
Where payments are made to an ex-spouse, the ex-spouse becomes the person liable for the tax.
The liability falls on the employee or ex-spouse regardless of who actually received the payment.

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