Budget Notes


Who is likely to be affected?

1. Employers who contribute to occupational pension schemes.

General description of the measure

2. Legislation will be introduced in Finance Bill 2008 to confirm that in calculating its corporation tax liability the amount a company was permitted to deduct in respect of pension costs between 1 April 2004 and 5 April 2006 was limited to the pension contributions paid in the year.

Operative date

3. This measure is wholly retrospective and has effect for employer contributions to registered pension schemes relating to accounting periods starting on or after 1 April 2004 and ending on or before 5 April 2006.

Current law and proposed revisions

4. Tax relief for employer contributions to pension schemes is given on cash contributions and not on amounts shown by company accounts. This policy was maintained when the taxation of pension schemes was modernised from 6 April 2006 (A Day).

5. Following changes in the legislation on and after 1 April 2004 which had effect on and before 5 April 2006, the express provision preventing a tax deduction for expenses shown in the profit and loss account was removed. This deletion did not reflect a change of Government policy and had no practical impact, as the overall effect and application of the legislation was still to allow only cash contributions.

6. For the prevention of doubt, legislation will be included in Finance Bill 2008 which will confirm that during the period between 1 April 2004 and 5 April 2006, tax relief for employer contributions to registered pension schemes is restricted to the cash paid in the relevant accounting year.

Further advice

7. If you have any questions about this change, please contact Martyn Rounding on 020 7147 2821 (email: martyn.rounding@hmrc.gsi.gov.uk). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk