There is no restriction on how many schemes an employer can set up and no limit to the amount they can contribute.

The employer’s contribution is paid gross and is allowable as a business expense and they will get tax relief against corporation tax as a limited company or income tax as a sole trader or a partner.

Any contributions must pass the “wholly & exclusively” test. An example of when this test may be needed is when a contribution is made for a controlling director, close friend or relative of a controlling director. It will be accepted if the remuneration package is comparable with that of an unconnected employee performing duties of a similar nature.

Tax relief on an employer’s contribution is usually given in the accounting period in which the contribution is paid.

However, this is not the case where a loss is created that can be carried back or where a large single contribution is made that is subject to spreading for tax relief purposes. An employer’s contribution will be spread over a period of years for tax relief purposes if:

• it exceeds 210% of the contribution paid in the previous chargeable period; and
• the amount of the excess (defined as the amount paid over and above 110% of the contribution paid in the previous chargeable period) is £500,000 or

An employer contribution does not have to be spread if the increased contribution is attributable to the funding of:

• cost of living rises for pensioner members; or future service liability for new scheme entrants.