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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: computing adjustments

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

Adjustments may be required in computing an employer’s taxable profits to:

  • disallow a deduction for an employee benefit contribution to the extent that qualifying benefits or qualifying expenses are not paid out of it during the period, or within nine months of the end of the period, in which the contribution would otherwise be allowed as a deduction; and
  • allow a deduction for a later period to the extent that qualifying benefits are paid in that later period, up to a maximum of the amounts disallowed for earlier periods for which a deduction has not already been given.

Disallowing deductions

The amount of the deduction disallowed is:

  • the amount of the deduction which would otherwise be allowed for employee benefit contributions in computing an employer’s profits for the period concerned,

less

  • the amount of the qualifying benefits and qualifying expenses paid out of the contributions during the period or within nine months of the end of it.

Allowing deductions for later periods

The amount disallowed remains available to be deducted in computing the employer’s taxable profits for later periods in which qualifying benefits are provided out of the contributions.

The amount allowed as a deduction for a later period is the lower of:

  • the amount of the qualifying benefits paid out of disallowed contributions during the later period, and
  • the total amounts disallowed for earlier periods less the total amounts already allowed for subsequent periods.

An example applying these rules is at BIM44610.