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HMRC internal manual

Business Income Manual

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HM Revenue & Customs
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Specific deductions: employee benefit trusts: general-purpose EBTs: timing of deductions for contributions: what it applies to

S39 Income Tax (Trading and Other Income) Act 2005, S1291 Corporation Tax Act 2009

The employee benefit contribution legislation applies to deductions which would otherwise be allowed in computing an employer’s taxable profits in respect of employee benefit contributions.

For this purpose profits includes trade profits, the profits of property businesses and the profits of companies with investment business.

Deductions which would otherwise be allowed

In computing an employer’s taxable trade profits (or property business profits), deductions would otherwise (were it not for the employee benefit contribution legislation) be allowable for employee benefit contributions which are:

  • wholly and exclusively for the purposes of the employer’s trade, and
  • revenue (not capital) expenditure, and
  • correctly deductible for that period in accordance with generally accepted accounting practice.

Employee benefit contributions

’Employee benefit contributions’ are made where, as a result of any act or omission:

  • property is held, or may be used under, an employee benefit scheme, or
  • where there is an increase in the total value of property (or a reduction in liabilities) that is held, or may be used under, an employee benefit scheme

For this purpose, an employee benefit scheme is a trust, scheme or other arrangement for the benefit of persons who are, or include, present or former employees of the employer.

This definition covers an employer’s contributions to an EBT from which its employees may benefit. It also includes employers’ payments to other kinds of intermediaries who may be required, or may have discretion, to use them to provide benefits to employees of the employer.

What the legislation does not apply to

The employee benefit contribution legislation does not apply to contributions to EBTs which are:

  • paid by the employer to the trustees before 27 November 2002, or
  • contributions to retirement benefit schemes or approved personal pension schemes, or
  • contributions to trusts set up to provide benefits under accident benefit schemes, or
  • (for Corporation Tax only) contributions to most trusts set up to provide employees with shares in conjunction with employee share schemes.