Revenue Note for Guidance

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Revenue Note for Guidance

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

Summary

This section secures that, in respect of any payments made after 21 April 1997, no deduction is to be allowed for sums actually paid into an approved pension scheme by an employer to the extent that provisions in excess of contributions actually paid have already been allowed for tax purposes to the employer. The reason for this section is that, as respects chargeable periods ending on or before 21 April 1997, section 774(6) did not contain the prohibition on relief for provisions made by employers for contributions to be made by them in the future and, accordingly, it may have been argued that there was a doubt as to whether relief was available at the time of the making of the provision or at the time of the actual payment. The view of the Revenue Commissioners was that there was no substance to the doubt. However, any potential doubt was removed in relation to chargeable periods beginning after 21 April 1997. Accordingly, this section provides for a correcting mechanism where there may have been an over allowance of relief before 21 April 1997 on the basis of provision for payments.

Details

(1) Where —

  • an actual payment of contributions is made into an exempt approved scheme after 21 April 1997, and
  • but for this section, that payment would be allowed for tax purposes (under section 774(6)), and
  • the total of previously allowed deductions exceeds the “relevant maximum” (see below),

the amount to be allowed in respect of the payment and any other payment made after 21 April 1997 (which would also be allowable but for this section) is to be reduced to the lesser of —

  • the excess of the previously allowed deductions over the “relevant maximum”, and
  • the amount which reduces the deduction (that is, the amount of the payment itself) to nil.

(2) The term “previously allowed deductions” is the total of deductions in respect of pension contributions allowed in all previous chargeable periods, while “the relevant maximum” is the amount that would have been allowed for those chargeable periods if the restriction to amounts actually paid had been applied for those chargeable periods.

(3) Any payment (that is, a payment other than an ordinary annual payment) which is treated under section 774(6)(d) as paid over a period of years is to be treated as actually paid at the time when it is treated as paid under that provision.

Examples

Payment of €10,000 made by an employer on 1 May 2002.

Example (1) Deductions allowed for previous tax years (including provisions) total €120,000, while amounts actually paid in those years amount to €105,000 (the relevant maximum). The excess is therefore €15,000. The €10,000 is reduced by the lesser of €15,000 or the amount required to reduce it to nil (i.e. €10,000). Therefore, no deduction is allowed.

Example (2) as in (1), deductions previously allowed amount to €120,000 but amounts previously paid amount to €118,000. The excess is €2,000. As this is less than the amount required to reduce the deduction to nil (i.e. €10,000) the actual reduction is €2,000 and relief is granted for €8,000.

Relevant Date: Finance Act 2019