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HMRC internal manual

Company Taxation Manual

HM Revenue & Customs
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Corporation Tax: management expenses: pension contributions: in respect of the investment business - general

Where a company with investment business has a trade as well as an investment business, then any expenses which are disallowable under Case I will not necessarily be allowable as expenses of management of the investment business. The facts will demonstrate whether relief is to be given as a Case I deduction, as an expense of management or whether relief is not due at all.

Contributions by a company with investment business must be made in respect of that company’s investment business, to be relievable as an expense of management (ICTA88/S75(1) and (4)).

The payment of a contribution to a registered pension scheme is generally part of the costs of employing staff; as a part of their remuneration package, (and therefore an expense of management). It will be rare in the context of pension contributions to have to consider whether there is a non-business purpose for the employer’s decision to make the contribution since a pension payment by an employer will normally be made for the purpose of managing the investment business even where the employees in respect of which the contribution is being made are retired or are those of another employer. But there are issues specific to the payment of pension contributions and pension scheme deficits to be taken into account, particularly where contributions are met or guaranteed on behalf of other companies (these are explored in more detail at CTM08352+).

The subject of pensions and specifically of underfunding of pension schemes is an emotive one for pensioners and scheme members. Companies/groups do not want to be seen to be abandoning scheme members or pensioners or giving them a raw deal. There will therefore normally be a business purpose - such as the protection of the group’s reputation, or the morale of the ongoing employees - underlying any payment of pension contributions, including payments made by parent companies of multi-employer groups where contributions are made which relate to its subsidiaries.

Below are details of where to find guidance in respect of the potential circumstances where the expenditure may not relate to the investment business of the paying company. It will be a question of fact, but in most cases the contribution will be made in respect of the payer’s investment business:

  • contributions in respect of controlling directors or shareholders, more particularly their relatives or close friends - See BIM46035 and BIM47105. The same considerations apply where the company is a company with investment business and see also CTM08330;
  • contributions required by S75 Pensions Act 1995, including approved withdrawal arrangements, see CTM08354 
  • contributions required by the Pensions Regulator following the issue of a notice, see CTM08350 and BIM46050 
  • contributions in respect of orphaned liabilities, see CTM08355 
  • contributions made as part of the disposal of an investment eg shares in a subsidiary, see CTM08348 
  • contributions in respect of a deficit where it is not paid in respect of the paying company’s investment business see CTM08353 
  • contributions made as part of the arrangements for going out of business or where a trading company claims to be a company with investment business on cessation of its trade, see CTM08347