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HMRC internal manual

Company Taxation Manual

HM Revenue & Customs
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Corporation Tax: management expenses: pension contributions: sale or cessation of business

When a trading company ceases to trade it does not automatically become a company with investment business (see CTM08070). Expenses do not therefore suddenly change their nature to become expenses of management. If the expenses relate to the former trade then consider the examples in BIM46040 as to whether a Case I deduction is appropriate.

Any expenses paid after a company has ceased to have an investment business (i.e. it is no longer a company with investment business) cannot, for the most part, be expenses of management. This is simply because if the company no longer qualifies as a company with investment business within ICTA88/S130 then relief under ICTA88/S75 for expenses of management is not available.

However where payments relate to a debt under PA95/S75 then FA04/S199 will apply to treat the payment as made on the last day of business and relief can therefore be given for such contributions.

For contributions made around the time of a cessation, but not after, it will be necessary to consider whether they are made in respect of the investment business or for the purpose of going out of business as the latter would mean no relief was available under S75. This should be clear from a detailed consideration of the facts surrounding the contributions but the following should be borne in mind.

Contractual obligations

The payment of a pension contribution is part of the normal costs of employing staff. Where an undertaking to provide a pension was given to employees as part of their employment package, then the costs of meeting that undertaking (given for legitimate business purposes), will generally be incurred in respect of the investment business.

So even where a contribution arises on the cessation of the business it does not necessarily in this specific context mean relief cannot be available. Payments made under contractual obligations in the capacity of employer (including a sponsoring employer) can be expenses of management even on cessation.

The facts will show whether a contribution is incurred in respect of the company’s investment business or not, taking into account the specific reasons why a company may wish to make such payments.


A group holding company has both a trade and an investment business. It decides to sell its investment business and concentrate on its trading activities. It operates a registered pension scheme for all employees which is underfunded. Before the sale it pays £40m into the pension scheme so that it is now fully funded.The obligation to make the payment arises from the employee remuneration packages. It is an expense of managing the investment business (so far as it concerns the employees related to the investment business) which has been crystallised by the cessation of that part of the business. The part of the £40m which relates to the investment business will be allowable as expenses of management and the balance as a deduction from the trading profits in the accounting period in which it is paid.

No contractual obligations

Where the undertaking to provide a pension is not undertaken as part of a contract of employment, it may not be paid in respect of its ongoing investment business, e.g. again it could be a cost of going out of business. But, more likely, it is still normally a cost of employing staff and will be made for no other reason than for protecting its reputation or the morale of its staff, in which case, relief should normally be given.


Company A has sold a subsidiary company B out of the group. The sale agreement does not create any ongoing liability for A or the group in respect of Company B pensioners. Some time later Company B goes into liquidation leaving the pension scheme substantially underfunded. Company A, which is still a company with investment business, decides to pay part of the shortfall. It has no contractual obligation for doing so but the facts demonstrate that it makes the payment to reassure its own staff that their own pensions are safe. Company A can get relief for the payment.