PSI4.7 - Introduction: Historical Review of Revenue Legislation - New Code - Finance Act 1973

(This archived guidance relates to HMRC discretionary practice before the 6th April 2006. For current guidance on Registered Pension Schemes see the Registered Pension Schemes Manual)

Under Old Code legislation and Finance Act 1970, service whilst a controlling director could not be taken into account for the purposes of an approved scheme. A controlling director was a director of a company which was controlled by its directors and who held more than 5% of the ordinary share capital. The exclusion was justified on the grounds that controlling directors were virtual proprietors of their businesses. This gave them the ability to determine their own income in a way not normally available to ordinary employees. It was considered that the appropriate route for them to make provision for retirement was through the then more restrictive retirement annuity regime.

In the late 1960s and early 1970s pressure grew for the above bar to be lifted. It was argued that the 5% shareholding test was too restrictive. In 1973, when directors were made liable to National Insurance Contributions in the same way as normal employees, the opportunity was taken to remove the ban on controlling director service (section 15 Finance Act 1973). In order to lessen the scope for abuse, certain administrative controls were introduced on the benefits payable to directors who controlled directly or indirectly, more than 20% of a company's voting shares. These controls are dealt with in later Parts of these instructions.