Company Contribution Timing and the Year-End Deadline
A trading company, Oakhill Ltd, wants to make a €150,000 employer contribution to its occupational scheme for the benefit of its two directors, both aged 48, before its accounting year-end on 31 December. The company's accounts are prepared to 31 December and the corporation tax return is filed the following September. The scheme's trust deed permits employer contributions but requires them to be paid in cash. The company has €90,000 of cash and a €70,000 debtor due in February. The directors want the contribution treated as an expense in the 31 December accounts and want to know whether it can be paid after year-end but still count. They also want to know whether the contribution is deductible for corporation tax and whether there is any benefit-in-kind issue for them.
1. Can the contribution be treated as an expense in the 31 December accounts if it is paid after year-end, and what are the conditions?
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Under accounting rules, an expense can be recognised in the period if the obligation existed at the balance sheet date. A contribution that is decided and committed before 31 December but paid afterwards may be accrued if the liability is probable and measurable. However, the trust deed requires payment in cash, and Revenue will look at whether the contribution was actually paid.
Practical position:
- If the directors pass a board resolution before 31 December committing to the contribution and the scheme is legally entitled to it, accrual may be possible.
- But the safer and more defensible position is to pay before year-end. With only €90,000 cash and a €70,000 debtor due in February, the company cannot pay €150,000 in cash by 31 December without other funding.
Judgement: The company should either (a) pay what it can before year-end and accrue the balance only if the legal obligation is clear, or (b) defer the whole contribution to the next accounting period. Treating an unpaid contribution as an expense without a clear obligation risks a challenge on the accounts and on the corporation tax deduction.
2. Is the employer contribution deductible for corporation tax, and is there a benefit-in-kind issue for the directors?
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Deduction: An employer contribution to a Revenue-approved occupational scheme is generally deductible for corporation tax as a business expense, provided it is paid and is not excessive. The deduction follows the accounts treatment, so timing matters: if the contribution is accrued but not paid, the deduction may be challenged.
Benefit-in-kind: Employer contributions to an approved scheme are not a benefit-in-kind for the directors - they are not taxed on the employer's contribution. The directors are taxed on benefits when they arise from the scheme (pension and lump sum), not on the contribution.
Revenue limits: The contribution must be within the age-related percentage limit for each director, tested against their remuneration. At 48, the limit is a defined percentage of salary; a €75,000 contribution per director may exceed the limit depending on salary, and any excess is a tax charge.
Judgement: The company should confirm each director's salary and the applicable percentage before paying, and should pay in cash before year-end to secure both the accounts treatment and the corporation tax deduction.