BIM46080 - Specific deductions: registered pension schemes: cross border schemes

Employees who are not resident in the UK may be beneficiaries under a registered pension scheme. Where an employer undertakes to provide employees with a pension as part of their employment package, then the costs of meeting that undertaking are incurred for the purpose of the business, whether or not the employees are resident in the UK.

The term ‘cross border scheme’ is used for a pension scheme covering employees in two or more EU member states.

The Pension Act 2004 incorporates into UK law the provisions of the EU Directive on Institutions for Occupational Retirement Provision (2003/41) on cross border schemes. Under the Pensions Act 2004 there are specific requirements that cross border schemes have to be fully funded at all times.

Example

Company A operates a registered pension scheme for its employees. It is open to both employees working in the UK and those in Ireland. On valuation, the scheme is found to be underfunded. Company A is required to pay an additional £5m into the scheme within 2 years, which it does in the following year.

Company A can make a deduction for the sum under FA04/S196 for the period of payment as the purpose of making the payment was wholly and exclusively that of its trade.