RPSM05102120 - Technical Pages: Contributions and tax relief: Employer contributions: Cessation of business

Spreading of tax relief when an employer ceases business

Once a spread has been determined in accordance with the legislation it will not be varied. However an exception is made if an employer ceases to carry on business either

• in the chargeable period in which the contribution that triggers spreading of tax relief was paid or,
• in a later chargeable period into which relief on relevant excess contributions have been spread

and the spreading of tax relief would mean that the employer does not get full tax relief on the contribution before it ceased business.

To allow the employer to receive full tax relief on the contribution the employer can choose for the contribution to be treated in one of two ways. These are

1. allow the unrelieved balance of any relevant excess contributions against their profits in the chargeable period when the employer ceases business or,
2. treat the unrelieved balance as if it had been carried back and paid in equal daily instalments beginning with the day of cessation of business and ending on the first day of the chargeable period in which the contribution was paid.

Where the second option is chosen the daily amount is calculated using the formula

Where

UP = the amount of the unrelieved portion of the pension contribution and

DRP = the number of days between the start of the chargeable period in which the contribution that was spread was actually paid and the day the company ceased business.

Examples of how spreading of tax relief works when an employer ceases business can be found on RPSM05102130.