PSI5.2.1 - Contributions by Employers: Ordinary Annual Contributions - General

(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)

An employer's ordinary annual contribution (OAC) is allowed as an expense incurred in the chargeable period in which it is paid (section 592(4) ICTA 1988). You should not accept that unpaid pension reserves are an allowable deduction on an accrual basis (in accordance with Statement of Standard Accountancy Practice (SSAP) 24) for the purposes of Case I or II of Schedule D. This will not be a difficulty in relation to a contribution claimed in any accounting year ending after 5 April 1993. Section 112 Finance Act 1993 makes it clear by addition to section 592(4) that only contributions actually paid are allowable. For accounting periods which ended on or before 5 April 1993, if you are asked for advice on the question of pension costs claimed as allowable on an accruals basis in accordance with SSAP 24, you should respond by explaining our long held view that the allowance is only granted by virtue of section 592(4) ICTA 1988. If you encounter any difficulty on the matter you should refer the case to Technical Support Section via your Section Manager for advice. Section 592(6) ICTA 1988 deals with payments by employers which are not OACs ie, "special contributions" (though the Act does not use this term). These may either be allowed in the period in which they are paid or spread over a number of years (see Section 3 of this Part). The legislation does not define "ordinary annual contributions" and our interpretation does not define "ordinary annual contributions" and our interpretation is based on the Old Code definition, based in turn on Regulation 5, S.R. & O 1921 No 1699. It is taken to mean "an annual contribution of a fixed amount or an annual contribution calculated on some definite basis by reference to the earnings, contributions or numbers of the members of the fund". The Glossary to PN contains further guidance on our interpretation of an OAC.

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