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HMRC internal manual

Employment Income Manual

Non-approved schemes: contributions made by employer

Section 386 ITEPA 2003

Note: Section 386 ITEPA 2003 is repealed with effect from 6 April 2006 by Section 247 FA 2004. Any contributions on or after that date are not taxable under Section 386. There is no equivalent to that Section in connection with employer-financed retirement benefits schemes

For information about an employee’s contributions see EIM15414.

An employer’s contribution to a non-approved retirement benefits scheme counts as employment income (see EIM00512) of an employee to the extent that the contribution is made with a view to the provision of relevant benefits (as defined at EIM15403) for that employee or others (see EIM15409). See example at EIM15420. Separately identifiable costs incurred by an employer in setting up or administering a scheme are not chargeable on employees under Section 386 ITEPA 2003 as such costs cannot fund the provision of benefits.

If the employer’s contribution covers benefits for more than one employee it is apportioned among the employees in accordance with the separate benefits to be provided for each of them, see example EIM15437.

The contribution is treated as income of the tax year in which that contribution is paid, see EIM15411.

Contributions by an employer will nearly always be in cash. However, where the contribution is made by means of the transfer of an asset from the employer to the scheme, it was decided by the Court of Appeal n Irving v HMRC ([2008] EWCA Civ.6) that such contributions are “a sum paid” by the employer for the purposes of Section 386. Where the contribution is made by transfer of assets from the employer, the amount of the contribution is the market value of the asset at the time of transfer.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

There are some exceptions to the charge, see EIM15413.

(If for any reason any employer contributions are not so charged, make a note in the employee’s permanent notes sub-file or computer record historical notes. Any lump sum benefit subsequently paid to the employee that is attributable to such contributions is chargeable to tax when received: see EIM15420).