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HMRC internal manual

Business Income Manual

Specific deductions: pension schemes: cross border schemes

Employees who are not resident in the UK may be beneficiaries under a registered pension scheme. Where an employer undertakes to provide employees with a pension as part of their employment package, then the costs of meeting that undertaking are incurred for the purpose of the trade, whether or not the employees are resident in the UK.

The term ‘cross border scheme’ is used for a pension scheme covering employees in two or more EU member states.

The Pensions Act 2004 incorporates into UK law the provisions of the EU Directive on Institutions for Occupational Retirement Provision (2003/41/EC) on cross border schemes. There are specific requirements that cross border schemes have to be fully funded at all times.


Company A operates a registered pension scheme for its employees. It is open to both employees working in the UK and those in Ireland. On valuation, the scheme is found to be underfunded. Company A is required to pay an additional £5 million into the scheme within two years, which it does in the following year.

Company A can make a deduction for the sum for the period of payment as the purpose of making the payment was wholly and exclusively that of its trade.