BIM44640 - Specific deductions: Employee benefit trusts: general purpose EBT contributions: timing of deductions: FA89/S43: contributions made before 27 November 2002

FA89/S43 defers to timing of the deduction for employees’ remuneration which remains unpaid nine months after the end of the period of the accounts in which it is deducted in accordance with generally accepted accounting practice.

In Dextra Accessories Ltd v Macdonald the House of Lords decided that an employer’s’ contribution to a general purpose EBT is a payment of ‘potential emoluments’ within the scope of FA89/S43.

The consequences of this decision are that a deduction for an employer’s EBT contribution, if it would otherwise be allowed for a period, is:

• disallowed to the extent that it is not used to pay emoluments to employees within nine months of the end of that period; and
• allowed as a deduction for later period(s) when emoluments are paid to employees.

To qualify for a deduction a payment of emoluments need not give rise to an income tax charge or NICs liability. But the onus is on the employer to explain why the payment of the emolument is not subject to tax deductions under PAYE and to employers’ national insurance contributions (NICs).

Where emoluments are received by employees in the form of assets rather than money the amount of the emolument should be taken to be the market value of the asset at the time it is received by the employee.

Where the application of FA89/S43 to EBT contributions is in dispute please contact CT&VAT (Technical) before any arrangements are made for the case to be listed for hearing by any body of Commissioners.