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HMRC internal manual

Employment Income Manual

Non-approved schemes: contributions made by employer excluded from charge

Sections 389 and 390 ITEPA 2003

Note: Section 386 is repealed with effect from 6 April 2006 by Section 247 FA 2004.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 (see EIM15010).

There are some situations in which an employer’s contribution to a non-approved retirement benefits scheme was not chargeable under Section 386 ITEPA 2003 on the employee:

  • where the earnings from the employment (see EIM00515) are charged on remittance (see EIM40002) or would be if there were any. Earnings are charged on remittance if they are taxable earnings under Section 22 or Section 26 ITEPA 2003 (see EIM40002). Section 22 applies to chargeable overseas earnings for a year when the employee is resident and ordinarily resident but not domiciled in the UK. Section 26 applies to foreign earnings for a year when the employee is resident but not ordinarily resident in the UK.
  • where:

    • the earnings from the employment are from a non resident employer to someone not domiciled in the UK (see EIM40031) and
    • the retirement benefits scheme is a “corresponding” scheme. (This refers to non-UK schemes that have the characteristics of a UK exempt approved scheme (see EIM15407). Pension Schemes Services (PSS) is responsible for deciding whether a scheme has “corresponding” status).
  • in practice, where a 100% deduction is allowable against earnings under Section 341 ITEPA 2003 (see EIM33000 and subsequent guidance).

However, a charge may still arise under Section 394 ITEPA 2003 in respect of lump sums, etc subsequently paid out of the scheme (see EIM15420).