Deductions for employee benefit contributions

The taxpayers set up unfunded unapproved retirement benefit schemes (UURBS) under which they would provide directors and key employees with a pension in the future. The pensions were calculated by reference to estimated profits for he relevant year and were set at between 80% and 100% of the profits before tax for each period. The taxpayers made provisions in their accounts for their liability to make future pension payments and claimed a deduction in calculating their profits. The same firm of chartered accountants had marketed the arrangement to both companies.

The UURBS was notified to HMRC under the disclosure of tax avoidance scheme legislation.

HMRC disallowed the deductions saying the liabilities were incurred for the purpose of a tax avoidance scheme and not wholly and exclusively to pay pensions to employees.

The First-tier Tribunal concluded that the provision of pensions to directors was ‘at best only an incidental aim’ of...