BIM44571 - General-purpose EBTs: deductions for employers' contributions: permanent disallowance of contribution

Additional conditions concerning deductibility of employers’ contributions to EBTs were introduced into CTA09/S1290, and ITTOIA05/S38 and ITTOIA05/S866 by sections 36 and 37 of the Finance (No 2) Act 2017.

These additional rules apply to contributions to EBTs made or to be made on or after 1 April 2017 (CT) or 6 April 2017 (IT). A deduction for the employee benefit contribution will not be allowable unless and to the extent that:

  • Qualifying benefits are provided out of the contribution within 5 years of the end of the period in which the contribution was made, AND
  • If the provision of qualifying benefits gives rise to both a tax charge and an NIC charge, then the related tax and NIC are paid within 12 months of the period in which the deduction for the contribution would otherwise be allowable.

Note that once the time period for considering the deduction has been established, the question of payment of the related income tax and NICs must be decided by reference to that period and cannot be reconsidered by reference to a later period.

For corporation tax the legislation makes the operation of section 1290(2) CTA 2009 subject to further restrictions. The restrictions are contained at sections 1290(3B) – (3E). These set out that, where section 1290(3C) applies, a deduction under section 1290(2) can only be allowed in so far as it is a qualifying amount, defined in section 1290(3D).

Section 1290(3C) sets out that the new conditions apply where the provision of qualifying benefits leads to both an employment income tax charge and an NIC charge.

Section 1290(3D) sets out a condition for an amount to be a “qualifying amount”. The condition is that the relevant tax charges have to be paid before the end of the relevant period (see new section 1290(3E) for definitions of these two terms).

Section 1290(1A) sets out that no deduction will be allowed in respect of employee benefit contributions for a period of account which starts more than 5 years after the end of the period of account in which the contributions are made.

Similar provisions have been enacted for the equivalent ITTOIA legislation.

An example illustrating how the provisions work is at BIM44611