EIM15060 | Employer-financed retirement benefits schemes: contributions made by employer

Historical background

Section 386 ITEPA 2003 was a charging provision that applied where an employer paid a sum into a non-approved retirement benefits scheme, with a view to providing relevant benefits for their employee. Such employer contributions were taxable as the employee’s employment income.

This provision was repealed with effect from 6 April 2006 by section 247 Finance Act 2004. After it was repealed, any employer contributions made to an employer-financed retirement benefits scheme (EFRBS) were no longer taxable under the legislation applying to EFRBS in Chapter 2 Part 6 ITEPA 2003.

Current position

Part 7A ITEPA 2003 took effect from 6 April 2011. This overlays the EFRBS rules as described in EIM15010 and can mean in some cases that the contribution can lead to the employee being charged to employment income in relation to their employer’s contribution. In such a case the employer would operate PAYE where the charge arose. Part 7A is complex legislation so refer to the dedicated guidance pages for whether a charge arises, what value it applies to and precisely when it applies. But in general outline, when an employer pays a contribution for their employee into an EFRBS that is a third-party arrangement that passes through the section 554A gateway, then a charge will arise when the contribution is earmarked for them in the EFRBS. This may happen right away or subsequently. The charge may also arise before a contribution is paid where there is a relevant undertaking as explained at EIM45140. The legislation also provides that other events may cause a charge to arise upon the proceeds of the contribution that are beyond the scope of this page.