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HMRC internal manual

Business Income Manual

Specific deductions: pension schemes: timing of deductions

S196, S197, S199, S199A, S200 Finance Act 2004

General rule

Employers’ contributions to registered pension schemes are allowed as a deduction for the period of account in which they are paid by the employer, and for no other period, unless either the deduction is required to be spread over a number of periods or the deduction is allowed for an earlier period, as described below. See also BIM46150 for the denial of up-front relief for certain employer asset-backed contributions.

In practice, as the accounting treatment is not followed for tax purposes, this means that an employer’s tax computation is adjusted to:

  • add back the deduction for the pension scheme contributions shown in the profit & loss account, and
  • give a deduction for contributions to registered pension schemes on a ‘paid’ basis.


Spreading of deductions will be required where there is an increase over 210% in the level of employer contributions paid from one period to the next, unless one of the exceptions in S197(3) applies or if the excess contributions are paid for excepted purposes (see S197(7)). There are special rules on cessation of a business (S198). Spreading also applies to certain payments made via third parties under arrangements intended to circumvent these rules (S199A). If the employer operates more than one pension scheme, you look at the respective contributions to each one separately and not the combined total employer contributions to all schemes. This is a specialist area and you should refer to the detailed guidance in the Pensions Tax Manual at PTM043400

S75 Pensions Act 1995

Where an employer, who has ceased trading, has to make a payment into a registered pension scheme to satisfy a liability crystallising under S75, or the Pensions (Northern Ireland) Order 1995, SI 1995 No 3213) (NI22), Article 75, S199 treats that payment as a contribution under the registered pension scheme.

Where the employer has ceased trading, the payment is treated as being made on the last day of trading and is deductible in arriving at the profits for the final period of trading. See BIM46045.