RPSM05102025 - Technical Pages: Contributions and Tax relief: Employer contributions: Spreading of indirect contributions

Spreading of relief on indirect contributions

In order to prevent avoidance of the spreading rules certain payments by an employer are treated for spreading purposes as if they are contributions to a registered pensionscheme. Affected payments are those made on or after 10 October 2007 except any made under a contract entered into before 9 October 2007. The amount of relief in respect of an affected payment comes within the normal spreading provisions as if it were an employer’s pension contribution of that amount - see guidance starting on page RPSM05102060.

Affected Payments

The affected payments are those where the following conditions apply:

1. Without this rule the employer would be entitled to relief in a chargeable period (2nd CP) in respect of a payment intended to facilitate payment of pension contributions by a third party whether under the original scheme or a substitute scheme.
   
   
2. The employer made a contribution under the original scheme in preceding chargeable period (1st CP).
   
   
3. If the payment under 1 had been made instead as a pension contribution by the employer to the original scheme relief would have been spread under s197 and the purpose or one of the purposes of arranging the payment via the third party was to avoid s197 applying (“the avoidance condition”).

A payment under 1 includes not only direct payments by the employer but also where relief is ultimately given to the employer, for example via an intra group recharge.

Where only part of a payment is intended to facilitate the payment of pension contributions by a third party, only the amount of relief in respect of that part is treated as a contribution of that amount when applying the normal spreading provisions.

Original and Substitute scheme

The original scheme is the one to which the employer made pension contributions in the 1st CP at 2 above.

The substitute scheme is:

1. any registered pension scheme, to which there is a relevant transfer in the 2 years before the 2nd CP payment at 1 is made or,
   
   
2. any registered pension scheme to which it is envisaged that such a transfer will be made after that day, or
   
   
3. any registered pension scheme to which a transfer is made from a substitute scheme, which if it had instead been a transfer made at that time from the original scheme would have been a relevant transfer.

Relevant Transfer

A relevant transfer is a recognised transfer from the original scheme of more than 30% of the aggregate of,

• for transfers within a. above the amount of the sums and market value of the assets held for the purposes of, or representing accrued rights under the original scheme immediately before the transfer, and,
• for transfers within b. above the amount of those sums and the market value of those assets on the day on which the 2nd CP payment at 1 is made.

For guidance on recognised transfers see RPSM14101010.