PTM043100 - Contributions: tax relief for employers: introduction
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Tax relief on employer contributions to a registered pension scheme is given by allowing contributions to be deducted as an expense in computing the profits of a trade, profession or investment business, and so reducing the amount of an employer’s taxable profit.
In the case of a trade or profession, employer contributions will be deductible as an expense provided that they are incurred wholly and exclusively for the purposes of the employer’s trade or profession (Part 2 of the Income Tax (Trading and Other Income Act) 2005 or Part 3 of the Corporation Tax Act 2009). Where the employer is a company with investment business the employer contributions will be deductible as an expense of management (Chapter 2 of Part 16 of the Corporation Tax Act 2009).
International issues
In addition to contributions to registered pension schemes the same basis of relief is also given to employer contributions that are relevant migrant member contributions. See PTM044100 for further details.
Period of account for allowable deductions
The pension tax legislation amends the normal rules as to what is an allowable deduction and as to the timing of a deduction. The main points that differ from the normal rules are:
- pension contributions are not treated as capital payments if they otherwise would be, and
- a deduction can only be given for the period in which the contribution is paid.
More complete details of the differences between the specific rules relating to what is allowable and deduction of pension scheme contributions and the normal rules can be found on PTM043200.
The HMRC officer dealing with the Income Tax/Corporation Tax return of the employer will consider questions as to whether the contribution is an allowable expense. More specific guidance about whether contributions to registered pension schemes are an allowable expense is in the Business Income Manual at BIM46001.
Tax relief and regular accruals
Tax relief can only be given on contributions that have actually been paid. The amount shown in the profit and loss account in respect of obligations in respect of defined benefit schemes may be substantially different from the amount of contributions paid to the scheme. But it is only the amount paid that can be considered for tax relief.
Further guidance - investment companies
Detailed guidance on the deduction in computing profits for employer’s contributions to a registered pension scheme by an investment company is in the Company Taxation Manual at CTM08340 onwards.