ACCA Taxation (F6) Practice Exam

Which is a characteristic of employer contributions to pension schemes?

1. Employers must match employee contributions

2. Contributions are considered non-taxable income

3. They are tax-deductible expenses for the employer

4. Employers have no involvement in personal schemes

The correct answer is: They are tax-deductible expenses for the employer

Employer contributions to pension schemes are classified as tax-deductible expenses for the employer. This means that when an employer makes contributions to an employee's pension scheme, they can deduct those amounts from their taxable profits. This provides a benefit not only to the employee, who is saving for retirement, but also to the employer, as these contributions lower their overall tax liability. The option about the necessity for employers to match employee contributions is not universally true, as employers are not legally required to match contributions; they can contribute varying amounts based on the specific terms of the pension scheme. Regarding the treatment of contributions as non-taxable income, employer contributions to pension schemes do not form part of an employee's taxable income at the time of contribution, but they are not considered non-taxable income in the same manner as certain benefits might be. Instead, they are handled differently within the tax regulations. Finally, the statement about employers having no involvement in personal schemes is misleading, as employers can still play a role in facilitating or contributing to their employees' personal pension schemes, even if they don't manage those schemes directly. Thus, the ability of the employer to treat their contributions as tax-deductible expenses highlights the fiscal advantages and structural role that these contributions play within the