Pensions deficit - Is it tax allowable?

Posted by Anonymous PM | on Tue, 16/03/2010 - 12:56 307 4 comments | report

I am doing the draft computations (31/12/09) for an Association. They have a Defined Benefit Pension deficit of circa £50,000. This is per the independent actuarial report.

This deficit has been posted to the P&L account under administration expenses with the corresponding credit in the Balance sheet (provision for liability).

My question is - Is this deficit deductible for corporation tax purposes or should it be disallowed.

I have not prepared the accounts but am helping them with the Tax Comps and not sure about this issue, so I thought I would ask here.

Thanks in advance for any advice

Comments

Please help with this one

Anonymous | Tue, 16/03/2010 - 21:42 | Permalink

Please help with this one. I cannot find answers on the web or HMRC site. Anybody know the answer or can point me to some sort of reference material?

Thanks

I don't think so.

zebaa | Tue, 16/03/2010 - 23:07 | Permalink

Without any great detail it is difficult to know the exact position, but my guess is that the pension is trust based. As such there will be trustees and this stands seperate (but connected by the trust deed) from the Association. In other words we are dealing with two things here. The Pension fund actuarial report deficit is a projection of what the future position may be. Depending on who the actuary is there may also be different levels of probability. So there may be a £50,000 deficit at 70% probability and a £40,000 deficit at 80%. The question is what the trustees accept as a reasonable level of risk. Once that is decided then the Association can pay over that amount, which, once paid, should be tax allowable. This is all complicated stuff however. My strong suggestion is you get tax & pension advice from experts in this area.

It gets worse if the Association can not pay and it is an unincorporated body. If so expect to need (very expensive) lawyers too.

FRS17

Anonymous | Wed, 17/03/2010 - 08:56 | Permalink

If this is defined benefits scheme FRS17 probably applies. Been a while since i did one, but I think you essentially strip out the pension scheme items and replce them with the contributions. you might find there is pension scheme interest included in the company accounts too which obviously isn't taxable.

Contrary

pawncob | Wed, 17/03/2010 - 20:59 | Permalink

If the fund was in surplus, you wouldn't expect to pay tax on it would you?

So why would the loss be allowable?