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Pension scheme CT deduction

Pension scheme set up costs - corporation tax deduction?

I'm sure I've read somewhere that the initial set up costs for a company pension scheme are regarded as capital and therefore no corporation tax deduction is available but I can't find anything to support/refute this. Ongoing admin and pension contributions are deductible. Am I going mad or is it post budget fatigue?

It would seem harsh, given that it is now a compulsory requirement for a company...

TIA

 

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24th Nov 2017 12:24

As a company's pension scheme doesn't belong to the company, you could not possibly capitalise it as an asset of the company (and pension schemes are more usually a liability than an asset). The set-up costs are allowable as a business expense.

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By Ruddles
to Euan MacLennan
24th Nov 2017 12:58

Just because the asset doesn't belong to the company that doesn't mean that expenditure that is intrinsically capital in nature suddenly becomes revenue in nature.

Otherwise, here's some clever planning - I'll pay for your new office, and you pay for mine - hey presto, we both get a revenue deduction for the build costs.

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By Annetax
to Euan MacLennan
24th Nov 2017 12:59

There are often items in the P & L that relate to capital matters and are disallowed in the CT computations. BIM46025 does seem to indicate not deductible.
No dispute about running costs or contributions though.

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By DJKL
24th Nov 2017 12:28

Certainly how I treated our payments to Peoples.

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By DJKL
to Exector
24th Nov 2017 12:52

Oops, should have added back £300 re each company.

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By Annetax
24th Nov 2017 12:52

Hi Executor

That's what I found and why I was concerned. That seems to imply they are not deductible against CT, regardless of appearing in the P & L.

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By Exector
to Annetax
24th Nov 2017 13:03

The position re intital set up costs for co pension schemes is effectively established by the specific case law quoted, which is the seminal tax case identifying capital expenditure and specifically concerned the deduction for pension set up costs!

extract from HMRC summary of case elsewhere in the manual re cap/rev divide:

"The classic definition in the body of the decided cases comes from Atherton v British Insulated and Helsby Cables Ltd [1925] 10TC155. The company claimed the cost of a contribution that it had made to setting up the nucleus of a pension fund for the benefit of its clerical and technical salaried staff. At pages 192 and 193 Viscount Cave gave his much quoted definition:

‘…when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital.’"

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24th Nov 2017 13:23

http://www.legislation.gov.uk/ukpga/2004/12/section/200?view=plain

The outstanding amendments relate only to the updating of the statutory references in (a), (b) and (c).

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By Ruddles
to Portia Nina Levin
24th Nov 2017 14:01

More Friday fun :-

What does "in connection with contributions" mean? ie it doesn't say that there's no other relief in connection with pension schemes per se. So it depends on whether you think that the setting up of a scheme is something done in conection with contributions. Arguably it does, albeit indirectly. Also, are the costs of setting up a scheme incurred in connection with the provision of benefits? In a defined contribution scheme, clearly there cannot be any benefits if the scheme doesn't exist place, but it is of course the contributions that give rise to the benefits.

Acknowledging that you consider CCH (and HMRC) advice to be unreliable, both of their commentary indicate the purpose of s200 is to ensure that relief is given in respect of only contributions actually paid - ie no deduction for accrued contributions (although that is already dealt with in s196) or for anything else done by the employer to increase the value of the fund.

FWIW, nothing changes my agreement that the costs of setting up the scheme are capital and therefore disallowable.

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to Ruddles
24th Nov 2017 14:06

There's no point keep reading CCH. It's always just going to tell you what HMRC say.

I think that establishing the scheme facilitates the making of contributions, and so is in connection with contributions. S 196 does the job that you mention perfectly well, all by itself.

I actually only looked because I had in the back of my mind a permissive provision in there somewhere. I didn't find one.

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By Ruddles
to Portia Nina Levin
24th Nov 2017 14:50

I think you'd find that CCH often challenge HMRC's interpretations and their guidance is sometimes in direct opposition to that of HMRC. But, hey ho.

And, also acknowledging that you don't consider explanatory and background notes to be of much importance, I nevertheless find it ineresting that in this case the main purpose of s200 was indeed stated to be to ensure that only those contributions paid were relieved, as a consequence of new accounting rules perhaps requiring contributions to be recognised in the accounts before they were paid, or the accounts to reflect actuarial changes in the value of the fund.

I'm still not sure how much s200 adds to s196 (which primarily deals with the deductibility or not of contributions), but this (re s200) seems to be pretty clear:

"The provisions in this clause ensure that there is a specific tax rule which overrides the timing of deductions under accountancy standards"

The question is how one interprets:

"This clause ensures that an employer is not entitled to any relief in connection with contributions under a registered pension scheme apart from relief for the payment of the contribution itself"

If the purpose of s200 was simply to restrict relief to contributions and nothing else, they could just as easily (and more clearly) have said:

"This clause ensures that an employer is not entitled to any relief in connection with a registered pension scheme apart from relief for the payment of contributions."

But, to use your parlance, they didn't.

And, as we all know, the costs of administering a pension scheme are generally allowable. Those costs are just as, if not more so, connected with the contributions as the setting up of the scheme, yet no-one seems to think that s200 restricts relief for those running costs. Which leads me to the conclusion that s200 does indeed relate only to the timing etc of contributions and not to the treatment of other costs of the scheme. Other opinions are available.

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By Annetax
24th Nov 2017 14:21

Thanks to everyone. At least that little alarm bell was worth listening to - it's a £950 set up fee!

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