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How to Spread Tax Relief on a Large Employer Pension Contribution

How to Spread Tax Relief on a Large Employer Pension Contribution

This week, one of our team members had a call from an adviser who was struggling with the rules around corporation tax relief on a single large employer pension contribution.  We had to agree the rules are not easy, so in this article we are looking at one of the examples from our calculation workbook that tackles this very area. Those who are studying for the CII J03, AF2 or AF3 exams will find this useful for their revision.



An Example from Our Calculation Workbook

Up Sticks Ltd has made an annual contribution of £2.2m this year to its SSAS. This is an increase from £700,000 last year and has been made in recognition of the members’ contribution towards the firm’s significant increase in profits.  Calculate how the contribution in the current year will be treated for the purposes of tax relief, including the amount that will qualify for tax relief in the first year.

The Steps to Work This Out

  • Establish the contributions of this year and last and compare the two figures
  • There is an excess if the new contribution is more than 2.1 times the previous one
  • The excess is the amount of the new contribution less 1.1 times the previous one
  • If the excess is £500,000 or more then tax relief is spread
An example of how to spread tax relief for a large employer pension contribution. Click To Tweet


Let’s break it down using the figures from the example:

The contribution last year was £700,000 and this year it is £2.2m.  Is this year’s contribution more than 2.1 times the previous one?   Multiply the previous year’s contribution by 2.1 ie

£700,000 x 2.1 = £1,470,000.

The new contribution of £2.2m is more than 2.1 times the previous one of £700,000.

Tax relief will be spread if the excess is more than £500,000.

The excess is the amount of the new contribution less 1.1 times the previous one.

The new contribution is £2,200,000 and from this, we take £770,000 (ie 1.1 times the previous one).  This equals £1,430,000 which is over £500,000

We then need to refer to a table which tells us that if this figure is above £1m but less than £2m, tax relief will be spread over 3 accounting periods  ie £1,430,000 ÷ 3 = £476,667.

In the first year, the amount allowed for relief is £476,667 plus the figure of £770,000 which totals £1,246,667.  In the next two accounting periods £476,667 will be given in the end totalling the contribution of £2.2m.

It doesn’t come up often in the corporate papers or AF3, but it’s in the manuals, so it’s always a possibility it will be tested.

Over to You…

Has anyone working in the corporate world had to explain this to an employer?

Grab the resources you need!

If you’re studying for your CII AF2 exam, and you’re wanting to feel confident on exam day, grab our free taster to try out one of Brand Financial Training’s resources for yourself.  Click the link to download the AF2 calculation workbook taster now!

Click here to download our free calculation workbook taster for CII AF2


Alternatively, you can download our taster resources for AF3 or J03 if you are revising for one of those exams.