Whether an employer’s contribution to a general purpose employee benefit trust is allowable as a deduction (at some time) depends on whether it is:
General guidance on the capital / revenue divide is at
BIM35000 onwards. Decided tax cases show
that there is nothing inherently capital about making contributions
to employee benefit trusts after they have been set up.
However, the contributions paid by the employer will be
capital expenditure if the terms of the trust deed show that they
have not been alienated entirely from the employer. This was the
case in Rutter v Charles Sharpe & Co Ltd [1979] 53TC163 where
there was provision for shares to be sold by the trustees and the
proceeds paid to the company. It was held that each payment made to
the trustees gave rise to a corresponding asset of a durable nature
and so all of the employer's contributions were on capital account.
The tax case law in this area relates mainly to employee
benefit trusts set up to provide share- related benefits to
employees and directors (employee share ownership trusts). More
detailed information about the relevant tax case law is at
BIM44155.
