BIM46005 - Specific deductions: registered pension schemes: overview

Tax relief on an employer's contribution to a registered pension scheme is given in accordance with the normal tax rules for the deductibility of the expenses of a trade or profession, subject to the exceptions outlined below. For guidance on the meaning of employer for these purposes see BIM46015.

For tax relief for pension contributions made by a company carrying on an investment business, guidance on deductions for management expenses is at CTM08340.

The legislation governing deductions for an employer's contribution to a registered pension scheme (FA04/S196 to FA04/S200) provides for two departures from the normal rules for the deductibility of the expenses of a trade or profession:

• Contributions are not treated as capital payments for tax purposes (FA04/S196 (2)(a)), see BIM46025.
• The timing of the deduction for a contribution does not follow its accounting treatment. Relief for a contribution is given for the accounting period in which it is paid and not in the period(s) it is recognised in the accounts. This is subject to spreading rules. Further detail is at BIM46010.

All other rules and case law applies to determine the deductibility of contributions, in particular any contribution must be paid wholly and exclusively for the purposes of the trade for it to be deductible (ICTA88/S74 (1) (a) for corporation tax and ITTOIA05/S34 for income tax).

However, the wholly and exclusively rule is only likely to need to be considered in the limited circumstances outlined in BIM46030. A pension payment by an employer will normally be wholly and exclusively for the purposes of its trade even when the employees in respect of which the contribution is being made are retired or those of another employer. See BIM46065 for further details.

If, having obtained the facts and considered the guidance, you consider that a contribution was not or may not have been made wholly and exclusively for the purposes of their trade, you should first make a report to Technical Team, Charities, Assets Residence (CAR Trusts, Inheritance and Pensions), Yorke House, Castle Meadow Rd, Nottingham, NG2 1BG before challenging the deduction.