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HMRC internal manual

Company Taxation Manual

Corporation Tax: management expenses: pension contributions: multi-employer group schemes - S75 Pensions Act 1995

When an employer ceases to take part in a multi-employer scheme, it may become liable to make a further payment into the scheme under S75 Pensions Act 95. This is known as the ‘S75 debt’. The provisions of FA04/S199 rather than S196 apply to these payments. FA04/S199 treats the payments under PA95/ S75 as normal contributions but it will still be necessary to consider whether the other conditions are met and therefore its eligibility for relief. If they are paid or guaranteed by a sponsoring employer of the scheme then FA04/S196 will apply as normal.

In the straightforward case where the S75 debt is the liability of the contributor it can be accepted as an expense of management.

The S75 debt is calculated on the ‘buyout basis’. This sum is the difference between the funding already in the scheme and what would be needed to buy annuity policies to provide the scheme benefits to all the members.

A leaving employer can make arrangements with the trustees of the pension scheme (subject to approval by the Pension Regulator) whereby a smaller PA95/S75 debt is actually paid over and the balance is deferred, guaranteed or indeed paid by remaining group members. This is known as an Approved Withdrawal Arrangement (AWA).

Approved Withdrawal Arrangements

From 2 September 2005, the employer can (as above) make an agreement with the trustees of the scheme and with the Pensions Regulator to pay a lower amount than the PA95/S75 debt into the scheme. As part of the agreement another party, such as the former parent company, has to give a legally binding guarantee that, if called upon by the Pensions Regulator under the terms of the agreement, it will pay the difference between the amount due on a buyout basis, as at the date that the employer left the scheme, and the amount already paid.

Again it will be a question of fact whether payments made by other companies, including under any guarantees, were made in respect of the investment business of the company making the payments.

Where an employer has to make a payment under PA95/S75 when the business ceases, then the contribution is relieved in arriving at the profits chargeable for the final period (FA04/S199(4)). Payments made to satisfy PA95/S75, though they are crystallised by a cessation, should generally be distinguished from payments made for going out of business.