BIM44605 - Specific deductions: employee benefit trusts: general-purpose EBTs: timing of deductions for contributions: computing adjustments

S38 Income Tax (Trading and Other Income) Act 2005, S1290 Corporation Tax Act 2009

Adjustments may be required in computing an employer’s taxable profits to:

Disallowing deductions in the period for which the contribution is recognised under GAAP

For contributions made before 1 April 2017 (CT) and 6 April 2017 (IT)

The amount of the deduction disallowed is:

  • the amount of the deduction which would otherwise be allowed for employee benefit contributions in computing an employer’s profits for the period concerned, less
  • the amount of the qualifying benefits and qualifying expenses paid out of the contributions during the period or within nine months of the end of it.

For contributions made or to be made on or after 1 April 2017 (CT) and 6 April 2017 (IT)

The amount of the deduction disallowed is:

  • the amount of the deduction which would otherwise be allowed for employee benefit contributions in computing an employer’s profits for the period concerned, less
  • the amount of the qualifying benefits and qualifying expenses paid out of the contributions during the period or within nine months of the end of it, provided that any tax charge and NIC charge that arise on the provision of qualifying benefits have been paid within 12 months of the end of the period in which the contribution would otherwise be allowable

Allowing deductions for later periods

For contributions made before 1 April 2017 (CT) and 6 April 2017 (IT)

The amount disallowed remains available to be deducted in computing the employer’s taxable profits for later periods in which qualifying benefits are provided out of the contributions.

The amount allowed as a deduction for a later period is the lower of:

  • the amount of the qualifying benefits paid out of disallowed contributions during the later period, and
  • the total amounts disallowed for earlier periods less the total amounts already allowed for subsequent periods.

For contributions made or to be made on or after 1 April 2017 (CT) and 6 April 2017 (IT)

Where qualifying benefits are provided in a later period out of contributions previously disallowed, in order for a deduction to be allowed in the later period

  • the later period must start less than 5 years after the end of the period in which the contribution was made, and
  • if both an employment income tax charge and an NIC charge arise from the provision of qualifying benefits then these must be paid within 12 months of the end of the later period.

Provided these conditions are met, the amount allowed as a deduction for a later period is the lower of:

  • the amount of the qualifying benefits paid out of disallowed contributions during the later period, and
  • the total amounts disallowed for earlier periods less the total amounts already allowed for subsequent periods less the total amounts that have been permanently disallowed.

Example

For contributions made before 1 April 2017 (CT) and 6 April 2017 (IT)

For an example of how to apply the rules please see: BIM44610

For contributions made or to be made on or after 1 April 2017 (CT) and 6 April 2017 (IT)

For an example of how to apply the rules please see: BIM44611