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HMRC internal manual

Business Income Manual

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Specific deductions: employee benefit trusts: general-purpose EBTs: deductions for employers’ contributions: whether wholly and exclusively

S34(1)(a) Income Tax (Trading and Other Income) Act 2005, S54(1)(a) Corporation Tax Act 2009

Whether an employer’s contribution to a general-purpose employee benefit trust is usually allowable as a deduction (at some time) depends on whether it is:

  • revenue (not capital) expenditure (see BIM44560); and
  • wholly and exclusively for the purposes of the employer’s trade.

Wholly and exclusively

General guidance on whether expenditure satisfies the ‘wholly and exclusively’ requirement is at BIM37000 onwards.

Whether employers’ contributions to employee benefit trusts are wholly and exclusively for the purposes of the employer’s trade, and serve no other purpose, will depend on the facts of each case. Cases in which there may be most doubt about this will be close companies where directors who are also shareholders may be able to benefit from the trust.

The Special Commissioners’ decision in Mawsley Machinery Ltd v Robinson [1998] SpC170 is an example of a contribution to an employee share ownership trust which was not wholly and exclusively for the purposes of the company’s trade. The company was substantially owned by one shareholder/director. There was evidence that one of the purposes (indeed the primary purpose) for funding the trust was to purchase his shares in the run up to his retirement.

The tax case law in this area relates mainly to employee benefit trusts set up to provide share-related benefits to employees and directors (employee share ownership trusts). More detailed information about the relevant tax case law is at BIM44458.