RPSM05102020 - Technical Pages: Contributions and tax relief: Employer contributions: Changes to the normal rules

Changes to the normal rules for deductible expenses

The pension tax legislation amends the normal rules for allowable deductions slightly. These changes are as follows.

Employers carrying on a trade or profession

• Pension contributions will not be treated as capital payments if they otherwise would be for the purposes of Case I or II of Schedule D or in computing trading profits for the purposes of Income Tax (Trading and Other Income) Act 2005.
• When working out the amount of the profits, pension contributions can only be deducted for the period of account in which they were paid. It is not possible to carry the contribution back or forward to other periods.

Employers with investment business

Employer contributions to a registered pension scheme will be deductible as an expense of management of the employer’s investment business under S. 75 ICTA 1988.

But section 75 ICTA 1988 is modified so that

• relief will be available to an employer’s contribution where, ordinarily, it would not be allowed under S. 75 because the contribution represents an expense of a capital nature, and
• the contributions can only be referred to the accounting period in which they are paid.

Employers who are Life insurance companies

Employer contributions to a registered pension scheme will be deductible as an expense under section 76 ICTA 1988.

Section 76 ICTA 1988 is modified so that

• the contributions are brought into account in step 1 of S. 76(7) ICTA 1988 if they would not otherwise be (and so are not regarded as capital expenses), and
• the contributions can only be referred to the accounting period in which they are paid.

See the Life Assurance Manual Chapter 12A for further details about section 76 ICTA 1988.

Spreading of relief on indirect contributions

In order to prevent avoidance of the spreading rules, see RPSM05102060, certain payments by an employer are treated for spreading purposes as if they are contributions to a registered pension scheme. For more details see page RPSM05102025.