Income Tax (Trading and Other Income) Act 2005 section 42

Provision or payment out of employee benefit contributions

Section 42 sets out the rules for determining when qualifying benefits or qualifying expenses provided or paid by a scheme manager are treated as having been funded out of employee benefit contributions.

• When a scheme manager provides qualifying benefits or pays qualifying expenses after receiving employee benefit contributions, those benefits or expenses are treated as paid out of the contributions
• This treatment is capped at the total amount of contributions received, reduced by any benefits or expenses already treated as paid out of contributions
• The same principle applies separately for qualifying benefits provided by the scheme manager in relation to the additional condition in section 38(3)(a), again subject to a cumulative cap
• Any other amounts received or paid by the scheme manager are completely disregarded when applying these rules