RPSM05102130 - Technical Pages: Contributions and tax relief: Employer contributions: Examples of spreading on cessation of business

Examples of spreading of tax relief on cessation of business

Example 1

CS Ltd ceased business on 27 Sept 2008. In the chargeable period ending 30 June 2008 the company paid a large contribution to the company pension scheme which was spread

As CS Ltd ceased business in the period ending 30 June 2009 the company will receive full tax relief on the contribution. CS Ltd cannot use the cessation of business spreading rules.

Example 2

JMG Ltd ceased business on 15 November 2008. In the period ending 30 September 2008 JMG Ltd paid pension contributions result in the tax relief being spread as follows

As the company ceased business in the period ending 30 September 2009 it will not get full tax relief on the pension contribution unless it uses the cessation of business spreading rules. JMG Ltd can choose to

• Have the last £493,200 put into what would have been the period ending 30 September 2009, i.e. the company’s last chargeable period, or
• Have the last £493,200 treated as paid daily from 1 October 2007 to15 November 2008. The daily amount will be £1200 (£493,200/411 days). This gives £55,200 in the final chargeable period and £438,000 in the period ending 30 September 2008.

Example 3

KB Ltd ceased business on 28 February 2007. In the company chargeable period ending 31 March 2007 KB Ltd paid a contribution that would have been spread over 3 years. So that the company can get full tax relief the whole contribution is treated as paid in the final chargeable period which is also the period in which the contribution was actually paid.