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 whether expenditure satisfies the
‘wholly and exclusively’ requirement in ICTA88/S74
(1)(a) is at
BIM37000 onwards.
Whether employers’ contributions to employee benefit
trusts are wholly and exclusively for the purposes of the
employer’s trade, and serve no other purpose, will depend on
the facts of each case. Cases in which there may be most doubt
about this will be close companies where directors who are also
shareholders may be able to benefit from the trust.
The Special Commissioners’ decision in Mawsley
Machinery Ltd v Robinson [1998] SpC170 is an example of a
contribution to an employee share ownership trust which was not
wholly and exclusively for the purposes of the company’s
trade. The company was substantially owned by one shareholder /
director. There was evidence that one of the purposes (indeed the
primary purpose) for funding the trust was to purchase his shares
in the run up to his retirement.
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.
