Provision for future payments is not deductible

The taxpayers each established an unfunded unapproved retirement benefit scheme (UURBS) for their directors and other key employees. The aggregate amount of the pensions was set at 80% or 100% of the estimated profits before tax. Each company made a provision in its accounts in respect of its liability to make these future pension payments to employees and claimed a deduction in calculating its profits for corporation tax purposes to reflect that provision.

The schemes had been notified to HMRC in accordance with the disclosure of tax avoidance legislation (FA 2004 s 304) and allocated a scheme reference number.

HMRC disallowed the deductions on the basis that the expenses were not incurred ‘wholly and exclusively’ for the purposes of the trade.

The First-tier Tribunal dismissed the taxpayers’ appeals.

On the taxpayers’ argument that securing a tax advantage was not a separate and non-trading purpose the Upper Tribunal...