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HMRC internal manual

Company Taxation Manual

Corporation Tax: management expenses: pension contributions: multi-employer group schemes - general

Contributions to multi-employer schemes are likely to be the norm for most companies with investment business, many being group holding companies.

FA04/S196 applies to any contribution paid by a company under a registered pension scheme in respect of any individual entitled to receive benefits from that scheme. This includes contributions by an employer to registered pension schemes providing benefits for employees. It also includes contributions made by an employer in its capacity as a ‘sponsoring employer’ of a multi-employer scheme.

A sponsoring employer is one of the employers in respect of any or all of whose employees the occupational pension scheme has or is capable of having effect so as to provide benefits. In practice most group pension schemes will have most or all group members as participating sponsoring employers. A group holding company should be regarded as a sponsoring employer, if it is named as a sponsoring employer in the documentation of the scheme to which it makes contributions.

Contributions by sponsoring employers need to be considered carefully. Any contributions which in fact meet the pension liability of another group member may not be made in respect of the investment business of the contributing company, and if not cannot be expenses of management. Whether or not contributions are found to have been made in respect of the investment business will be a question of fact.

In a group scheme, the level of contributions is likely to be set for the scheme as a whole, which may not reflect the circumstances of the particular individual companies. However where the amount paid to the scheme is apportioned between the employing companies on a reasonable basis, informed where appropriate by actuarial advice, then you should accept that the amount recharged to each company is incurred for the purposes of that business and should be allowed as a Case I deduction or expense of management, as appropriate.

The apportionment and recharge may be carried out after the accounts have been finalised. But whenever the recharge is done, it remains the case that recharges to employers in multi-employer schemes should be allowed in the period of account in which the contributions are paid to the pension scheme, see BIM46020 for an example. This may require adjustments to be made in computations of the subsidiaries as necessary.

A group holding company may make a contribution in respect of the whole group scheme. Where this is not apportioned out as above, the whole payment can be allowed as an expense of management to the holding company where the relevant amounts are recharged to any subsidiaries, such that the recharges appear as credits/receipts in the paying company accounts and the parent is effectively therefore only getting relief for the net amount paid in respect of its investment business in the accounting period. Any payments which relate to the businesses of the subsidiaries will not otherwise be allowable in the computations of the holding company. But see CTM08180 in respect of group expenses.