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Employer pension contributions resulting in loss this year

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    #11
    There is an article mention excessive contributions here but scanning through it's not really going to help I don't think.
    Last edited by Contractor UK; 13 May 2018, 17:16.
    'CUK forum personality of 2011 - Winner - Yes really!!!!

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      #12
      The one piece that your accountant has got right is that you cannot take dividends if there are no profits to declare them from. Absolutely nothing to stop you paying a salary if there's money in the corporate account to pay it from.
      The greatest trick the devil ever pulled was convincing the world that he didn't exist

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        #13
        Ok so following good advice here and my own nervousness...

        I will probably just make the full annual allowance contribution to my SIPP (from employer contributions) this FY. I will carry the loss back to last year (where there was more than enough profit to cover).

        Does that sounds sensible?

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          #14
          Originally posted by DRJ View Post
          Ok so following good advice here and my own nervousness...

          I will probably just make the full annual allowance contribution to my SIPP (from employer contributions) this FY. I will carry the loss back to last year (where there was more than enough profit to cover).

          Does that sounds sensible?
          If you're without a contract, I wouldn't be dumping into your SIPP if you've not got a considerable warchest to keep paying salary from.
          The greatest trick the devil ever pulled was convincing the world that he didn't exist

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            #15
            There is enough of a warchest to pay a salary. I'm not trying to get myself in trouble

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              #16
              Originally posted by DRJ View Post
              Thank you for your help with this.

              I have had a long conversation with my accountants supervisor just now who tells me
              -Because the employer pension contribution this year has created a (£20k) loss this year HMRC may view the contribution as excessive and investigate
              -If I make an employer pension contribution using carry forward (I have enough retained profit to do this - and had I been aware I could do this would have made the pension contribution that year) this FY and claim the corporation tax back (for the previous year) HMRC will view this as excessive and investigate before refunding the corporation tax and may disallow the contribution.

              I intend to pick up a contract in the short term and have no doubt I will cover the losses carried forward quickly but the accountant has made me nervous now...
              I do agree that HMRC MAY ask a question or two about the contribution, but even that is a long shot.

              If they do, how about this for your argument - I decided, as company director, that I would like to pay myself a bonus this year. However, instead of receiving this in the form of cash, I asked the company to make a special one-off payment to my pension scheme. The bonus was paid as a result of my efforts in the previous accounting year when I won the company various contracts which resulted in a substantial turnover.

              It is not up to HMRC to decide if the contribution was a good commercial decision or not, i.e. that it made the company the loss.

              As I said earlier, the only challenges they would have are:

              a) was the pension contribution wholly and exclusively for the purposes of the trade (I would suggest my argument above proves the answer is yes.
              b) was the company trading for the whole period in which the contribution was made (I covered this earlier and you would have to be comfortable arguing this point)

              If you can convince HMRC on both of these points, you will be able to create the loss and carry it back.

              I must say that being told it is as simple as 'a pension contribution cannot create a loss' is total bollocks.

              Hope this helps.

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                #17
                Thank you all - that is very helpful. I'm changing accountants asap but just had to make sure I was doing the right thing before the end of the FY (for stress levels, my business and finances).

                Mucho gracias!

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                  #18
                  Originally posted by craigy1874 View Post
                  b) was the company trading for the whole period in which the contribution was made
                  What do you mean by "whole period in which the contribution was made". Do you mean the whole trading year ie you can't pay any pension in the trading year in which you cease trading?

                  I move into a new financial year in June. I intend to make a pension contribution and then empty the coffers via dividends. Then close the company. Are you saying I need to keep the company in place until the end of the financial year?
                  "Don't part with your illusions; when they are gone you may still exist, but you have ceased to live" Mark Twain

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                    #19
                    Originally posted by Cirrus View Post
                    What do you mean by "whole period in which the contribution was made". Do you mean the whole trading year ie you can't pay any pension in the trading year in which you cease trading?

                    I move into a new financial year in June. I intend to make a pension contribution and then empty the coffers via dividends. Then close the company. Are you saying I need to keep the company in place until the end of the financial year?
                    No, sorry if it wasn't clear.

                    Your current accounting period is obviously May 2017. How long after that will you continue to trade?

                    If, for example, you continue trading until the end of June, or July - my advice would be to extend your May accounting to June or July and deal with the final period of account in one go.

                    This will only work if you haven't extended your accounting period already in the last 5 years.

                    My initial point was that if, in a 12-month period, the company couldn't demonstrate that it traded for the full year, there is scope for HMRC to argue the pension contribution was made in a non-trading period and isn't therefore an allowable deduction for corporation tax, the same as any other expenses incurred in a non-trade period.

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