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HMRC internal manual

Business Income Manual

Specific deductions: pension schemes: wholly & exclusively: payments by third parties

The legislation dealing with the deduction of employer contributions to pension schemes (see BIM46005) only applies to contributions made by employers and former employers; remembering that employer for this purpose includes ‘sponsoring employers’ of the scheme.

To be allowable as a deduction in computing the third party’s trading profits a ‘third party’ contribution must therefore satisfy the established general principles of being:

  • revenue expenditure,
  • made wholly and exclusively for the purposes of the third party’s trade, and
  • deductible for the period concerned in accordance with GAAP.

There are three main situations in which someone other than an employer or former employer (a ‘third party’) may make contributions to a registered pension scheme.

  • Contributions required following the issue of a Contribution Notice or Financial Support Direction by the Pensions Regulator (BIM46050).
  • Contributions made under a guarantee arrangement (BIM46045).
  • Contributions made voluntarily by the third party (BIM37750 and BIM46065).

In each case, particular consideration needs to be given to the weight of reputation and morale purpose, in light of the facts established.