BIM46198 - Specific deductions: pension schemes: pre April 2006: personal pension schemes

Contributions to a personal pension scheme or arrangement may be made both by the member and by the member's employer. The employer is not obliged to contribute. Where an employer makes a contribution, the amount of the contribution is at the discretion of the scheme member and the employer, subject to the limits set out in ICTA88 Chapter IV, Part XIV.

Employers’ contributions to an approved personal pension plan will be an allowable deduction in computing profits unless there is good reason to doubt the purpose of the personal pension plan, perhaps because it is being used to reward a shareholder/director in a fashion that is denied to other employees.

Employers’ contributions to an approved personal pension plan are not chargeable to income tax on the employee as employment income (ITEPA03/S308, see EIM01570).

Employers may sometimes collect and pay employees' contributions on their behalf. It is important that there is a proper distinction between employers and employees contributions. Employees' contributions are not deductible in computing the employer's profits.