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HMRC internal manual

Business Income Manual

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Specific deductions: employee benefit trusts: general-purpose EBTs: timing of deductions for contributions: structure of the legislation

S38 Income Tax (Trading and Other Income) Act 2005, S1290 Corporation Tax Act 2009

The basic structure of the legislation is that:

  • S1290(2) or S38(2) disallow a deduction for an employee benefit contribution (if it would otherwise be due for a period) to the extent that qualifying benefits or qualifying expenses are not paid out of the contribution during the period or within nine months of the end of the period.
  • S1290(3) or S38(3) allow a deduction in computing the employer’s taxable profits for a later period to the extent that qualifying benefits are paid (including a relevant step taken within the meaning of the disguised remuneration legislation (see BIM44636) in the later period (up to a maximum of the amount previously disallowed).

An example applying these rules is at BIM44610.

Employee benefit contribution

’Employee benefit contribution’ is defined widely. See BIM44585. It covers employers’ contributions to EBTs. 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 or former employees of the employer.

Qualifying benefits and qualifying expenses

‘Qualifying benefits’ are discussed in BIM44595.

‘Qualifying expenses’ are discussed in BIM44600.

Payments ‘out of’ employee benefit contributions

It is not necessary to track the trustees’ precise use of each employee benefit contribution to determine whether and when:

  • qualifying benefits or qualifying expenses were provided or paid ‘out of’ a particular contribution for the purposes of disallowing amounts, or
  • qualifying benefits were provided or relevant steps (within the meaning of Part 7A Income Tax (Earnings and Pensions) Act 2003) were made ‘out of’ a particular contribution for the purposes of giving a deduction for a later period.

There are special deeming rules to match contributions with benefits or expenses: see BIM44615.