PSI5.4.6 - Contributions by Employers: Approved
Schemes Tax Treatment - Ordinary Rules of Schedule D
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(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)
In deciding how to treat the payment the Inspector will also
take account of case law. There are four main Tax Cases which may
be relevant:-
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Atherton v British Insulated and Helsby Cables Limited (10
TC 155). This is the main case upon which an Inspector
will rely to disallow a "capital" payment. The case concerned a
lump sum contribution paid on the establishment of a pension fund
to purchase back service benefits. The court decided that while it
may have been an expense incurred for the purpose of earning the
profits it was a payment of capital, and not from income; that is,
it brought into existence "an asset or an advantage for the
enduring benefit of a trade", the asset or advantage being the
goodwill and future contentment of the workforce.
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CIR v Anglo Brewing Company Limited (12 TC 803).
This related to an annuity bought for a retired employee on the
winding-up of the company. The court ruled that the payment was an
expense of the winding-up process and not a trading expense.
(Normally, ,had it not been for the winding-up of the trade, such
an expense would have been an allowable deduction in view of the
General Reversionary and Investment Trust Limited v Hancock case.)
An Inspector can use Anglo Brewing as authority for refusing a
deduction for contributions paid on a cessation of trade or
liquidation of an employer.
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James Snook and Co Limited v Blasdale (33 TC 244);
An agreement was made for the sale of the company's shares. This
agreement included a provision that the directors resign and be
paid compensation for loss of office. The courts decided that the
compensation payment was part of the bargain between the vendor and
purchaser on the sale of the firm and not money paid for the
purposes of the trade.
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Samuel Dracup v Dakin (37 TC 377). This concerned
the provision of benefits for a director. An Inspector can use this
case as authority to refuse an allowance for contributions paid to
a pension scheme where the members, or their families, effectively
control the employer company or firm. The money will have been paid
out, at least partly, for the personal advantage of the individuals
and not for the purposes of the employer's trade.
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