Category: Pension

Many UK workers are missing out on changes to pension tax relief worth hundreds of millions of pounds every year. Research shows that higher‑rate and additional‑rate taxpayers left around £1.3 billion of pension tax relief unclaimed between 2016/17 and 2020/21. With the government pushing more tax administration online and a new HMRC service launching in 2025/26, now is the perfect time to review your pension contributions and ensure you aren’t leaving free money on the table.

What Is HMRC Pension Tax Relief?

Pension tax relief is the government’s way of topping up your retirement savings. When you pay money into a registered pension, you can reclaim the income tax paid on that contribution up to the annual allowance (usually £60,000 in 2025/26). 

For basic-rate taxpayers, your pension provider automatically claims 20% tax relief – you pay £80, and £20 is added so that £100 goes into your pot. If you do not pay any tax, you can still receive 20% relief on contributions up to £2,880 a year.

However, higher and additional‑rate taxpayers (40% and 45%) are entitled to further tax relief. A £100 contribution costs as little as £60 if you pay 40% tax and £55 if you pay 45%. Only the first 20% is added automatically – you must claim the extra yourself.

Pension Tax Relief Breakdown

Taxpayer Type	Contribution (£)	Tax Relief (%)	Tax Relief Claimed Automatically	Extra Relief You Must Claim	Total Cost to You (£)
Basic-rate Taxpayer (20%)	£100	20%	£20	£0	£80
Higher-rate Taxpayer (40%)	£100	40%	£20	£20	£60
Additional-rate Taxpayer (45%)	£100	45%	£20	£25	£55

Net pay vs. relief at source

Whether your pension contributions attract full relief automatically depends on how your scheme is set up:

• Net Pay

Contributions are taken from your salary before tax, so you receive full tax relief at your highest rate without making a claim. This is common in many workplace schemes.

• Relief at Source scheme

Contributions are taken from your pay after tax. Your provider claims 20% relief for you, but if you pay more than 20% income tax, you need to claim the extra yourself.

• Salary sacrifice

You agree to a lower salary, and your employer pays contributions on your behalf. You get the relief through lower income tax and national insurance, so no additional claim is needed.

Why Are People Missing Out?

Many higher earners simply do not realise they must reclaim the additional relief. The tax treatment differs depending on the pension arrangement; many higher‑rate and additional‑rate savers never submit a claim. Hundreds of millions of pounds go unclaimed each year for those earning over £50,270. Common reasons include:

• Lack of awareness – people assume their provider handles all tax relief.
• Complex claim process – until recently, claiming meant completing a paper form or writing to HMRC.
• Not filing Self Assessment – workers who are not self‑employed may not be registered for Self Assessment and therefore never claim.

HMRC’s New Online Service

HMRC’s Transformation Roadmap outlines plans to modernise tax administration. In 2025/26, HMRC will roll out a new online service for all PAYE taxpayers with enhanced features to check and update income, allowances, and relief. 

There will also be a new expenses service allowing PAYE customers to submit claims and upload evidence in one place. A pilot has already started – the service is being tested with around 50% of the PAYE population and will expand to 35 million taxpayers during 2025/26.

The streamlined service replaces older manual claims. Eligible individuals can even backdate claims for up to four previous tax years, making it possible to recover significant sums.

Who Can Claim Extra Pension Tax Relief?

According to HMRC guidance, you may need to claim extra pension tax relief if:

• You pay income tax above 20% (higher or additional rate).
• Your pension uses relief at source, so only 20% relief is added automatically.
• Your pension scheme is not set up for automatic tax relief (for example, some workplace schemes or certain overseas pensions).
• Someone else pays into your pension (because contributions from others are treated as yours and might require a claim).

You are eligible to claim if you contribute to a personal pension (including self‑invested personal pensions) or a workplace pension where relief is not given automatically. HMRC states that intermediate‑rate or higher‑rate taxpayers and some basic‑rate taxpayers with ‘relief at source’ schemes can claim.

What Information Do You Need?

HMRC’s online claim tool asks for the following details:

• National Insurance number.
• Type of pension and name of your provider.
• Net amount of contributions for each tax year you are claiming.
• Payroll number or reference number.
• Proof of contributions (for example, a statement from your provider or payslip).

How to Claim Pension Tax Relief

Via HMRC’s Online Service

1. Check you’re eligible – make sure you are paying more than the basic rate of income tax and your scheme uses relief at source.
2. Gather your details – NI number, provider name, contribution amounts and proof of payment.
3. Create or sign in to your Government Gateway account and access the pension tax relief claim service.
4. Enter your pension contributions (gross amount, including the 20% added by your provider).
5. Submit your claim – you can save your progress and return later. HMRC will review your claim and typically respond within 28 working days.

Via Self-Assessment

If you complete a self-assessment tax return, you must claim through the return for both current and previous tax years:

• Go to the “Tax Reliefs” section of your return and enter the gross pension contributions (your payments plus the 20% basic relief).
• HMRC will calculate the extra relief based on your tax band.

If your return is more than 12 months past the deadline, you can write to HMRC with a reclaim letter.

What Happens After You Claim Pension Tax Relief?

The additional tax relief can be paid to you in different ways:

• Cash rebate direct to your bank account.
• Reduction in your tax bill if you owe tax.
• Change to your tax code, reducing the tax taken from future income.

How Extra Relief Works

Let’s consider Alex, who earns £60,000 and decides to contribute £6,000 to their pension. Through the relief at source scheme, Alex automatically receives £1,200 (20%) added to their contribution. Since their earnings exceed the higher-rate threshold by £9,730, they can claim an additional £1,946 in higher-rate relief. This brings the net cost of the £6,000 contribution down to £4,054.

If Alex’s income was £62,730 or higher, the full 40% relief would apply, reducing the cost of the £6,000 contribution to just £3,600.

Backdating Claims: Don’t Miss the Deadline

You can claim tax relief for up to four previous tax years, in addition to the current one. HMRC allows taxpayers to request a refund within four years of the end of the relevant tax year. For example, a claim for the 2024/25 tax year (ending 5 April 2025) must be submitted by 5 April 2029. During the 2025/26 tax year, you can backdate claims for the following years:

• 2022/23
• 2023/24
• 2024/25
• 2025/26

It’s important to make separate claims for each qualifying tax year. To avoid missing deadlines and receiving your refund sooner, it’s best to submit your claim as early as possible.

Annual Allowance and Carry Forward

The annual allowance sets a cap on the total contributions you (and your employer) can pay into pensions each tax year while still receiving tax relief. For 2025/26 the standard allowance is £60,000; high earners may have a tapered allowance between £10,000 and £59,999. If you’ve already taken flexible income from a defined contribution pension, the money purchase annual allowance (MPAA) reduces your allowance to £10,000.

If you do not use all of your allowance, you may be able to carry forward any unused allowances from the previous three tax years to make larger contributions. To use carry forward, you must:

• Have used up your current year’s allowance.
• Have been a member of a registered pension scheme in the years you’re carrying forward.
• Not having triggered the MPAA.

Carry forward can be a powerful way to increase contributions (for example, after a large bonus or inheritance) while still benefiting from tax relief.

How We Can Help You Deal With Recent Pension Tax Relief Changes

Apex Accountants help clients make the most of pension tax relief and navigate HMRC’s evolving digital systems. Our specialist auto-enrolment and pension services include:

• Pension tax relief checks – reviewing your contributions and tax bands to identify unclaimed relief and ensuring you maximise available allowances.
  
• HMRC online claims – handling the online claim process or Self Assessment entries on your behalf, including backdated claims for up to four previous tax years.
  
• Payroll and auto‑enrolment support – advising on net pay vs relief at source arrangements and helping employers set up tax‑efficient workplace pensions.
  
• Personal tax planning – integrating pension contributions into broader tax strategies to manage annual allowance, tapered allowance and carry forward.
  
• Business and company pensions – advising company directors on employer contributions, salary sacrifice and corporation tax deductions.
  

Our team stays up to date with the latest HMRC digital initiatives, so you can focus on your business while we ensure you claim every penny of relief you’re entitled to.

Conclusion

Pension tax relief is one of the most generous incentives the UK tax system offers, yet millions of pounds go unclaimed each year. Higher- and additional-rate taxpayers must take action to reclaim the extra relief due for contributions. The government’s new digital services make claiming easier than ever, and you can backdate claims for four previous tax years. Review your pension arrangements, check whether you are in a net pay or relief‑at‑source scheme, and gather the necessary information to submit a claim. Apex Accountants is here to guide you through the process, maximise your retirement savings and ensure you don’t leave money behind.

FAQs on Pension Tax Relief Changes

1. Why am I not receiving full pension tax relief?

If you pay the basic rate (20%) Income Tax and your pension uses a net pay arrangement, you already get full relief. However, if your pension uses relief at source, your provider only claims 20% for you. Higher and additional-rate taxpayers must claim the extra 20% or 25% themselves.

2. How do I know which arrangement my pension uses?

Ask your employer or pension provider. Net pay arrangements deduct contributions before tax and require no further action. Relief at source schemes deduct contributions after tax and automatically add 20% relief—you need to claim more if you pay a higher tax. Salary sacrifice means your employer pays the contributions, and you already benefit from tax and National Insurance savings.

3. Do I need to complete a Self Assessment tax return?

If you are already registered for Self Assessment, you must claim extra pension tax relief through your return. If you don’t normally file a return, you can use HMRC’s online service or contact HMRC to make a claim.

4. What documentation do I need?

You’ll need your National Insurance number, details of your pension provider and scheme, your net contributions for each tax year and evidence such as payslips or statements.

5. How long does it take to receive the relief?

Once you submit your claim, HMRC will review it and contact you within about 28 working days. You may receive a rebate, an adjustment to your tax code or a reduction in your tax bill.

6. How far back can I claim?

You can claim for the current tax year and up to four previous tax years. The deadline is four years after the end of each tax year. Missing the deadline means HMRC won’t process the claim.

7. What if my pension contribution exceeds my earnings?

Tax relief is limited to 100% of your relevant UK earnings. Contributions above that amount won’t receive relief and may incur an annual allowance charge.

8. Does salary sacrifice need a claim?

No. Under salary sacrifice, the employer makes the pension contribution, so you get income tax and National Insurance savings directly. There is no additional relief to claim.

9. Can I pay into someone else’s pension?

Yes, but contributions from others are treated as yours for tax relief purposes. The relief depends on your earnings rather than the person who paid in.

In November 2025, the Court of Appeal in A D Bly Groundworks & Civil Engineering Ltd and CHR Travel Ltd v HMRC [2025] EWCA Civ 1443 confirmed that corporation tax deductions for certain unfunded pension provisions were not allowed. The arrangements were set up primarily to reduce tax rather than to provide genuine retirement benefits, not because pensions are inherently problematic. This decision matters for any company considering large tax-driven pension provisions, unfunded retirement promises, or promoter-led schemes. 

It clarifies how the “wholly and exclusively for the purposes of the trade” test operates in the context of pensions and how far a tax-motivated structure can go before it loses deductibility.

Our concern is practical: what did the court actually say, what went wrong in this case, and what does a compliant, defensible pension contribution look like for a UK business in 2026 and beyond?

Legal Background: UURBS, EFRBS and the ‘Wholly and Exclusively’ Test

Before looking at the facts of the case, it is important to understand the legal landscape the court was working within: the nature of unfunded schemes and the way the wholly and exclusively test works for pension costs.

Unfunded, unapproved retirement benefit schemes and EFRBS

Historically, many employers used “unapproved” pension arrangements to provide additional benefits outside the registered scheme regime. HMRC now groups these under the concept of employer-financed retirement benefit schemes (EFRBS). Within that category sit funded and unfunded schemes.

UURBS as a form of EFRBS

 HMRC’s internal manuals explain that, before 2006, unapproved schemes were broadly of two types: funded unapproved retirement benefit schemes (FURBS) and unfunded unapproved retirement benefit schemes (UURBS). After 2006 these sit under the EFRBS label. A UURBS is essentially a contractual promise by an employer to pay benefits in future, without building up a separate fund or trust to hold assets earmarked for those benefits. There is no registered scheme status and no automatic access to the tax privileges of registered pensions.

Tax treatment and risk profile of UURBS

Because UURBS are not registered schemes, they operate outside the mainstream relief rules. HMRC guidance and advisory literature note that, while employers can sometimes deduct actual benefits paid under such schemes, unfunded promises and accounting provisions do not enjoy the same straightforward treatment as contributions to a registered pension. That makes the purpose behind any provision absolutely central.

The ‘wholly and exclusively’ rule for pension contributions

For corporation tax, the starting point is that all expenditure must be incurred “wholly and exclusively” for the purposes of the trade to be deductible (s.54 CTA 2009). HMRC’s Business Income Manual confirms that this rule applies to pension contributions just as it does to other trading expenses.

HMRC’s general approach to pension contributions

HMRC recognises that pension contributions are normally part of the cost of employing people. Commentary from Slaughter and May (drawing on BIM46030) notes that the condition will be met in most cases, because properly structured pension payments operate as a normal staff cost.

When deductibility is at risk

However, HMRC’s own guidance and professional commentary stress that they may disallow contributions when a clear non-trade purpose exists — for example, when tax-avoidance aims dictate the level, timing or structure of a contribution rather than commercial remuneration policy. Barnett Waddingham’s analysis of HMRC guidance highlights that employer contributions must be “wholly and exclusively” for business purposes and that HMRC’s updated statements on this point caused concern precisely because of their focus on underlying purpose.

The A D Bly decision is essentially an application of these principles to an aggressively tax-driven unfunded scheme.

How the A D Bly and CHR Travel Arrangements Worked

The Court of Appeal accepted the factual findings of the First-tier Tribunal (FTT) and the Upper Tribunal (UT). Those findings are important because they explain why the scheme failed, not just what the scheme was.

Adoption of an unfunded scheme promoted under DOTAS

Both A D Bly Groundworks & Civil Engineering Ltd and CHR Travel Ltd were profitable trading companies. They did not historically operate complex pension arrangements. The evidence, summarised in professional coverage and tribunal materials, shows that the UURBS was introduced to them by a third-party promoter and was disclosable under DOTAS, indicating HMRC considered it a tax avoidance arrangement.

The companies entered into the unfunded scheme and recorded very large provisions in their accounts. In broad terms, the scheme worked as follows:

• The companies promised to pay certain key employees and directors pension-type benefits at some point in the future.
  
• There was no separate pension fund or trust to hold assets to meet those obligations; this was a purely contractual promise.
  
• The size of each year’s provision was calculated by a remuneration consultant, not by a pensions actuary, and was set as a proportion of pre-tax profits — typically 80% to 100% of estimated annual profits.
  
• The companies then claimed corporation tax deductions for these provisions, amounting in total to around £5 million across both entities.

Crucially, no pension benefits were actually paid, and no cash left the businesses in relation to these promises during the relevant periods.

HMRC’s response and closure notices

HMRC opened enquiries and issued closure notices disallowing the deductions. The reasons were two-fold:

Failure of the “wholly and exclusively” test

HMRC argued that the primary purpose of the provisions was to reduce corporation tax, not to provide commercially justified pensions. In their view, the linkage to profits, absence of actuarial input, and the timing of the scheme’s introduction all pointed to tax avoidance as the central object of the expenditure.

Argument based on s.1290 CTA 2009

HMRC also advanced an alternative argument that the deductions were excluded by s.1290 CTA 2009, which restricts relief for certain “employee benefit contributions.” This point became important later, because the tribunals and Court of Appeal held that s.1290 did not actually apply to unfunded promises such as these.

The companies appealed the closure notices to the FTT.

Tribunal Findings: FTT and UT Focus on Purpose and Commerciality

First-tier Tribunal: primary purpose was tax reduction

The FTT examined the factual matrix in detail. It considered contemporaneous documents, emails and board minutes, as well as witness evidence from those involved.

From that evidence, the FTT drew a series of key conclusions:

Lack of pre-existing pension strategy

The companies had not previously engaged in structured pension planning or discussed a need to improve retirement benefits. The idea arose only after the promoter, Charterhouse, presented the UURBS arrangement.

Profit-driven contribution calculations

The size of the provisions was not determined by analysis of the employees’ likely retirement needs, nor by actuarial valuation. Instead, it was calculated as a high percentage of expected pre-tax profits for the year. The FTT interpreted this as a strong indicator that the scheme was designed to sweep profits into a tax-deductible provision.

Absence of genuine funding or benefit delivery

No funds were set aside, no trust was established, and no benefits were paid. The only tangible outcome was a reduction in taxable profits supported by an accounting provision.

On that basis, the FTT decided that the main purpose of the provisions was to reduce corporation tax. Any pension-related objective was, in its words, at best “incidental”. As a result, the expenditure failed the wholly and exclusively test and the deductions were denied.

Upper Tribunal: no error of law in the FTT’s approach

The companies appealed to the Upper Tribunal (UT), arguing that the FTT had misapplied the case law, in particular Scotts Atlantic, and that tax advantage should not be treated as a separate “purpose” in this way. The UT rejected those arguments.

The UT held that:

• The FTT had correctly identified and applied the legal principles governing “wholly and exclusively” expenditure.
• FTT was entitled to weigh factors such as the failure to obtain proper pension advice and the profit-based calculation of contributions.
• Factual findings — especially the tax-driven motivation — were open to the FTT on the evidence.

The Upper Tribunal therefore upheld HMRC’s position and confirmed that the provisions were not deductible.

The Court of Appeal’s Decision: Purpose, s.1290 CTA 2009, and the Role of Tax Avoidance

The companies then obtained permission to appeal to the Court of Appeal, advancing two central grounds:

1. That the FTT and UT had incorrectly applied the principles in Scotts Atlantic, or
2. That Scotts Atlantic itself had been wrongly decided and was inconsistent with later authority such as Hoey v HMRC.

The Court of Appeal dismissed the appeal. Its reasoning can be grouped into several key themes.

1. The tribunals applied the Scotts Atlantic principles correctly

The Court reaffirmed that the Scotts Atlantic line of authority, which sets out how to assess purpose in trading expenditure, remains good law. It emphasised that:

• The FTT did not simply “copy” Scotts Atlantic; it used that case to structure its analysis of purpose, which is exactly what tribunals are supposed to do.
• There was no inappropriate “fact matching”. The FTT did not assume that because Scotts Atlantic involved tax avoidance, this case must also; it made its own factual findings first.

In other words, the Court found that the FTT and UT had applied the right legal tests and had not committed any errors of law that would justify interference.

2. The dominant purpose was tax saving, not pension provision

The Court of Appeal placed heavy weight on the FTT’s factual findings and refused to disturb them. It accepted that:

• The UURBS was adopted primarily as a tax-saving scheme.
• There was no real evidence of prior concern about employee pensions or remuneration strategy before the promoter’s involvement.
• The use of profit percentages to calculate the provisions pointed clearly towards a tax-planning objective.

On that basis, the Court agreed that pension provision was only an incidental by-product and not the main object of the expenditure. That is fatal under the wholly and exclusively test, because once a substantial non-trade purpose is identified, the deduction must fail.

3. Tax avoidance can defeat deductibility even for “remuneration” expenses

A critical part of the taxpayers’ argument was that pension and remuneration costs should only lose deductibility if they are “excessive”. They suggested that, as long as an amount can be described as remuneration, the existence of a tax advantage should not in itself prevent a deduction.

The Court rejected that argument. It held that:

• There is no principle in the case law that ring-fences remuneration or pension contributions from the normal purpose-based analysis.
• While tax efficiency is not objectionable, a transaction whose main object is to secure a tax advantage is not incurred “wholly and exclusively” for trade purposes, even if it has the form of a salary or pension provision.

This confirms that labelling something “pension” or “remuneration” does not protect it if the underlying purpose is artificial tax reduction.

4. Unfunded promises fall outside s.1290 CTA 2009

Although not strictly necessary to the outcome (given the finding on purpose), the Court of Appeal also addressed HMRC’s alternative argument under s.1290 CTA 2009, which restricts relief for certain employee benefit contributions.

Drawing heavily on reasoning already accepted by the Supreme Court in NCL Investments, the Court held that:

• s.1290 and s.1291 CTA 2009 concern employee benefit contributions involving identifiable property, usually held in a trust or similar arrangement for employees.
• A bare contractual promise to pay a pension in future, without a fund, trust, or separate assets, is not an “employee benefit contribution” for these purposes.
• Unfunded UURBS promises therefore sit outside s.1290. Any question of deductibility is instead governed directly by the general “wholly and exclusively” rule in s.54 CTA 2009.
  

This part of the judgement is important because it closes off a potential argument that s.1290, rather than the general trading rules, should dictate the treatment of unfunded pension provisions.

Practical Lessons for UK Businesses

The case is not just of academic interest. It gives very concrete signals about how HMRC and the courts will approach pension-related tax planning.

1. Purpose and evidence will be scrutinised

Companies must assume that HMRC will examine not only what they have done but why they did it. In practice:

• Employers need contemporaneous evidence showing that any pension or remuneration provision was introduced for coherent commercial reasons – such as staff retention, succession planning, or aligning director rewards with long-term performance.
  
• If the only documented discussions revolve around tax savings or profit extraction, it will be very difficult to argue that the expense was incurred wholly and exclusively for the trade.
  

The A D Bly decision shows that tribunals will read board minutes, emails and advice letters closely and draw inferences about motive from them.

2. Profit-based formulas are a warning sign

Basing a pension provision on a simple percentage of estimated profits, without any link to employee circumstances, is now especially dangerous.

• A profit-linked formula strongly suggests that the real goal is to strip profits out of the corporation tax base.
  
• Without separate actuarial or remuneration analysis, it is difficult to demonstrate that the resulting amount is a reasonable reflection of retirement needs.
  

In A D Bly, this approach was one of the decisive factors leading the courts to treat the arrangements as tax-driven.

3. Unfunded promises are structurally weak from a tax perspective

The decision does not say that unfunded schemes are always ineffective. It does, however, underline why they are inherently vulnerable:

• There is no cash outflow that can readily be characterised as a “cost of employing staff”.
• There is no trust or separate fund, so the statutory rules that deal with contributions to EFRBS and employee benefit trusts do not apply neatly.
• The only real impact is on the accounting profit and the tax computation, which heightens the perception of artificiality if the scheme is promoted as tax planning.

Case commentary following the Court of Appeal judgment has emphasised that deductibility for unfunded UURBS provisions will always come down to purpose and commercial substance under s.54 CTA 2009, not technical arguments under s.1290.

4. Genuine pension contributions remain safe – if properly structured

The case is not an attack on mainstream pension saving. HMRC’s own manuals, as well as independent law firm guidance, make clear that contributions to registered schemes are usually deductible as part of normal staff costs, provided they are reasonable and genuinely linked to employment.

To preserve deductibility:

• Contributions should be made to registered pension schemes or properly structured, funded EFRBS arrangements.
  
• The level of contribution should reflect salary, responsibilities, and long-term reward policy, rather than being reverse-engineered to match profits.
  
• The employer should be able to point to a consistent remuneration policy and professional advice supporting the structure.

How Apex Accountants Can Help

Given the complexity and risk highlighted by A D Bly, many companies will want to review their pension and remuneration structures. Apex Accountants can assist in several specific ways.

Reviewing existing pension and remuneration arrangements

We can undertake a structured review of your current pension promises and related accounting entries. This includes:

• Identifying any unfunded retirement promises, EFRBS or historic UURBS that might expose the business to challenge.
• Analysing whether contributions and provisions align with HMRC guidance and case law on the wholly and exclusively test.
• Flagging high-risk patterns, such as profit-linked provision formulas, absence of advice, or schemes introduced solely on promoter recommendation.
  

Designing compliant pension contribution strategies

Where existing structures are risky or inefficient, we can help design more robust alternatives:

• Moving from unfunded promises to funded, registered schemes or more conventional employer contributions that fit within the normal tax relief framework.
• Creating contribution policies that reflect commercial objectives, such as retention of key personnel, succession plans for owner-managers, or gradual de-risking of founder involvement.
• Working alongside pension advisers and solicitors to ensure that legal, tax and regulatory aspects are aligned.

Supporting documentation and HMRC-facing evidence

One of the strongest messages from A D Bly is the importance of evidence. We can:

• Help you document remuneration and pension decisions through appropriate board minutes, internal policies and rationale papers.
• Prepare clear explanations linking pension contributions to business strategy, rather than tax motivation.
• Assist in responding to HMRC enquiries, using both the technical analysis and the factual context to defend legitimate deductions.

Integrating pensions into broader corporation tax planning

Pensions are only one part of the tax and reward picture. We also:

• Review how pension contributions interact with dividends, bonuses and other profit extraction routes for shareholders and directors.
• Model the tax and cash-flow impact of different remuneration mixes, so that you can plan over several years rather than reacting in a single year.
• Help ensure that any tax planning remains within the line of accepted practice, avoiding high-risk arrangements that are likely to attract HMRC challenge.

Conclusion

The Court of Appeal’s decision in A D Bly and CHR Travel underscores a simple but powerful point: pension-related deductions are only safe when they are grounded in genuine commercial purpose and real employee benefit. When provisions are engineered to mirror profits, introduced via promoters, and unsupported by actuarial or remuneration analysis, HMRC and the courts will treat them as tax-driven and refuse relief.

For UK businesses, this means revisiting unfunded promises, documenting decision-making more carefully, and ensuring that pension contributions, however tax-efficient, can be defended as part of a coherent employment strategy rather than an accounting device.

Apex Accountants can help you carry out that review, adjust the course where needed, and design structures that support both staff and shareholders without falling foul of the “wholly and exclusively” test.

FAQs on Tax-driven Pension Provisions

1. Are unfunded UURBS provisions still ever deductible for corporation tax?

In principle, it is not impossible for an unfunded promise to be deductible, but A D Bly shows that the bar is high. Where there is no funded scheme, no trust, and no actual payment, the only basis for deduction is that the accounting provision genuinely reflects a commercial liability incurred for the purposes of the trade. If the facts show that the arrangement was mainly created to reduce tax, as they did in A D Bly, the deduction will fail.

2. Does the decision affect normal employer contributions to registered pension schemes?

No, not in the sense of removing their basic deductibility. HMRC’s Business Income Manual still treats contributions to registered schemes as typically allowable, because they form part of staff costs. However, they must still satisfy the wholly and exclusively test. Extremely large or irregular contributions, introduced for obvious tax-planning reasons, could still be challenged, but orthodox contributions in line with salary and role remain low risk.

3. How does HMRC decide whether a pension contribution is “wholly and exclusively” for the trade?

HMRC and the courts look at the object of the expenditure. They examine surrounding documents, advice, and how the contribution amount was set. If those materials show that the main goal was staff retention, succession planning, or aligning incentives, the contribution is likely to pass the test. If they show that the main goal was to eliminate taxable profits, it will not. This object-based analysis is exactly what the FTT, UT and Court of Appeal applied in A D Bly.

4. Why did s.1290 CTA 2009 not rescue or block the deduction in A D Bly?

Section 1290 CTA 2009 restricts relief for certain “employee benefit contributions”, but the Court of Appeal, echoing the Supreme Court in NCL Investments, held that it only applies where there is identifiable property, typically held in trust or under a scheme structure. Because the UURBS in A D Bly involved only unfunded promises and no separate fund, s.1290 did not apply. Deductibility therefore turned entirely on the general trading rules and the wholly and exclusively test.

5. What practical steps should an employer take before introducing any pension-related tax planning?

Before implementing any significant pension-related strategy, employers should:

• Obtain independent tax and pensions advice, not rely solely on promotional material.
  
• Ensure the proposed contributions or provisions can be justified by a written remuneration or people strategy.
  
• Avoid automatic linkage of contributions to year-end profits.
  
• Document discussions in board minutes and internal papers in a way that clearly sets out the commercial rationale.