BIM46140 - Specific Deductions: Employer Financed Retirement Benefits Scheme
This guidance outlines when a contribution, or a provision for a contribution, to an employer financed retirement benefits scheme by an employer or former employer is allowable as a deduction in computing their profits for tax purposes. It applies to accounting periods ending on or after 6 April 2006.
An employer financed retirement benefits scheme that provides relevant benefits to employees or former employees but which is neither a registered pension scheme nor a pension fund to which ICTA88/S615(3) applies (ITEPA/S393A). Guidance on employer-financed retirement benefits schemes can be found in the Employment Income manual at pages EIM15000 onwards.
Employer financed retirement benefits schemes are also sometimes called unregistered or non-registered pension schemes.
Where there is an employer financed retirement benefits scheme, the employer may put money into the scheme (a “funded” scheme), or the employer may make an accountancy provision in the current period and pay the benefit direct to the former employee after they retire (an “unfunded” scheme).
The tax treatment for employer contributions for both funded and unfunded employer financed retirement benefits schemes is basically the same. The employer adds back the deduction in the accounts. The employer will only get relief when the former employee receives a taxable benefit, or a benefit that would be taxable if the former employee was resident in the UK.
Guidance on when a former employee is taxable, is in the Employment Income Manual at EIM15010 onwards.
Funded employer financed retirement benefits schemes:
FA03/Sch24 and ITTOIA/S38 apply to deductions in respect of contributions to employer financed retirement benefits schemes which would otherwise be allowed in computing an employer’s taxable profits.
Guidance on FA03/Sch24 and ITTOIA/S38 is at BIM44575 onwards. Although this guidance is written in terms of contributions to Employee Benefits Trusts (EBTs) it also applies to contributions to employer financed retirement benefits schemes.
Unfunded employer financed retirement benefits scheme:
Where an employer makes a provision for a benefit under an unfunded employer financed retirement benefit scheme then the accounting is added back.
Where the former employee is subject to Income Tax on the receipt of the benefit, or would be if they were resident in the UK, then the benefit is deducted in arriving at the profits for the period in which it is paid (FA04/S246).
