RPSM05400040 - Employer Pages: Contributions and tax relief: Employer contributions: Spreading of relief

Spreading of large contributions

When will tax relief on employer contributions need to be spread?

If there is a large increase in the level of employer contributions from one chargeable period to the next tax relief may be spread. Establishing if tax relief on an employer contribution to a registered pension scheme needs to be spread is a 4-stage process.

1. Establish what contributions have been paid in the current chargeable period.
2. If there has been a change in the length of chargeable periods adjust the periods to the same length.
3. Compare the relevant contributions in the current and previous chargeable periods to work out if there has been an excess and if so how much.
4. Is the excess more than £500,000?

For a detailed explanation of how this 4-stage process works and together with an example see RPSM05102070 to RPSM05102090.

Over what period will relief be spread?

The period over which tax relief will be spread depends on the size of the relevant excess contribution. Tax relief on the excess contribution will be spread as follows

For more details concerning the period of spreading see RPSM05102100. An example is given at RPSM05102110.

What happens if my company goes out of business during the period of a spread before all of the relief has been given - will my company lose any of the relief in respect of the spread contribution?

Once a spread has been determined in accordance with the legislation it will not be varied. However an exception is made if an employer ceases to carry on business either

• in the chargeable period in which the contribution that triggers spreading of tax relief was paid, or
• in a later chargeable period into which relief on relevant excess contributions have been spread

and the spreading of tax relief would mean that the employer does not get full tax relief on the contribution before it ceased business.

To allow the employer to receive full tax relief on the contribution the employer can choose for the contribution to be treated in one of two ways. These are explained in RPSM05102120 and examples of how spreading of tax relief works when an employer ceases business can be found on RPSM05102130.