Taxes Consolidation Act 1997 section 775

Certain approved schemes: provisions supplementary to section 774(6)

Section 775 provides a mechanism to claw back excess tax deductions where an employer was previously allowed relief for provisions (accruals) towards pension contributions that exceeded the amounts actually paid into an exempt approved scheme.

• Where employer contributions were made after 21 April 1997 into an exempt approved scheme, the allowable deduction is reduced if the total of previously allowed deductions (including provisions for future contributions) exceeds the amount that would have been allowed had relief been restricted to amounts actually paid.
• The reduction applied to the current deduction is the lesser of the excess of previously allowed deductions over the relevant maximum, or the full amount of the current payment itself (i.e. the amount that would reduce the deduction to nil).
• The effect of the formula is that the deduction is limited to the amount actually paid: if A is the amount accrued and P is the amount paid, the allowable deduction is A − (A − P) = P.
• Where a contribution is treated as spread over several years under section 774(6)(d), it is treated as actually paid at the time it is deemed to be paid under that spreading provision.