Here, it is important to point out that this requirement is about how the loan repayment terms are documented at the outset.
It is not about how the repayments are actually made. When it comes to the payments, employers can front-load them or even repay loans early.
If a sponsoring employer is unable to keep up with the repayment terms, it is important that the repayments are pursued by the Ssas on a commercial arm’s-length basis to reduce the chances that HMRC decides an unauthorised payment has occurred.
If the repayment terms do not meet the minimum required amount, the unauthorised payment amount is calculated as the difference between these two figures in whichever loan year provides the biggest difference.
Security
The value of the loan must be secured over the full term of the loan on a first charge basis on any asset owned by either the sponsoring employer or another party.
The security must be valued at least equal to the face value of the loan (including interest) and there can be no other charge on the asset that takes priority over the charge made by the Ssas.
If the asset used as security is ‘taxable property’, such as moveable machinery, there may be additional tax charges, meaning most scheme administrators will not permit taxable property to be used as security against the loan.
If this condition is not met, the unauthorised payment is the difference between the value of the security and the amount of outstanding loan.
Martin Jones is technical team leader at AJ Bell
