In deciding whether a contribution to a registered pension
scheme is allowable, the same rules apply as for any other expense
(with the exceptions of whether a payment is capital and the timing
of the deduction - see
BIM46010). 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).
The principles underlying the wholly and exclusively test are
long established and will apply equally to pension contributions as
to any other trading expense. More detailed guidance on the wholly
and exclusively test is at
BIM37000 onwards. However, it is
important to emphasise that as part of the cost of employing staff
pension, contributions will, prima facie, be allowable, including
the situation where one party makes a contribution on behalf of
another.
There are specific and unique issues to be aware of in
considering how the wholly and exclusively principle applies to
pension contributions met or guaranteed by one company on behalf of
another, either by another sponsoring employer of a multi-employer
scheme or by an unrelated third party.
The damage for a company seen to be abandoning the scheme
members, pensioners related to it or its associates can be
immeasurably greater than for a company failing to pay off a
supplier or a landlord, both in terms of its public face and the
morale of its employees. Often there is a much more significant
business driver to make a pension contribution to a scheme in
deficit than for other types of cost. In almost all cases this will
be the sole trade purpose behind one company paying a contribution
towards an underfunded pension scheme liability relating to another
company and a deduction will be due. Further guidance is at
BIM46065.
It will be relatively rare in the context of pension
contributions to have to consider whether there is a non-trade
purpose for the employer's decision to make the contribution. The
guidance that follows considers circumstances in more detail where
there may be a non- trade purpose for contributions. However, when
considering this guidance it should be borne in mind that whatever
the circumstance it will always be a question of fact as to whether
there actually is a non-trade purpose for the contribution and that
for the most part even in these circumstances the contribution will
be wholly and exclusively for the purposes of the trade of the
payer.
