CA-2024-001410 - [2025] EWCA Civ 1443

Restriction of deduction for non-contributory provision

This section applies in relation to an employer’s expenses of providing benefits to or in respect of present or former employees under an employer-financed retirement benefits scheme in a case where—

the expenses do not consist of the making of contributions under the scheme, but

in accordance with generally accepted accounting practice they are shown in the employer’s accounts…

The provisions that follow, s.246(2)-(4), deny deductions unless the benefits will be subject to income tax on receipt, and if they are so deductible defer deductions until the benefits are paid. They also define “employer-financed retirement benefits scheme” by reference to s.393A of the Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”). It is common ground that the UURBS do not fall within that definition because they do not provide “relevant benefits” as defined in s.393B of ITEPA. This is because any pensions paid will be taxable under Part 9 of ITEPA (pension income), and such amounts are excluded from the otherwise broad definition of “relevant benefits”.

Section 246 obviously immediately followed s.245. It is also worth noting the contrasting headings. Section 245 was headed “Restriction of deduction for contributions by employer”, whereas s.246 is headed “Restriction of deduction for non-contributory provision”.

The fact that s.246(1) FA 2004, a provision which continues in force, appears entirely apt to describe what occurred in this case provides further support for the conclusion that HMRC’s attempt to read s.1290 as covering the circumstances of this case should be rejected. Parliament clearly intended s.246 to govern unfunded arrangements (that is, “non-contributory provision”), in contrast to what is now s.1290. The fact that s.246 does not apply where the benefits are taxable under Part 9 of ITEPA can only reflect a deliberate legislative choice.

Ms Murray suggested that the use of s.246 to inform the scope of s.1290 was a new point, and those instructing her at the hearing were also unable to provide us with any assistance on what HMRC say that s.246 is intended to achieve. I do not accept that HMRC had no reason to prepare for the point. Section 246 was in the authorities bundle, had been relied on by the taxpayers before the FTT and was referred to in HMRC’s own skeleton argument for this appeal. Even if the Appellants had not relied on it in this court we would have had to consider it.