Pension Limit Question

[LimitedMan]

Hi,

Been really struggling to find answer to this question.

Wanted to make use of pension carry forward via employer contribution to SIPP and see that using carry forward could in theory put in £190,000 before April 6th (my default SIPP pension input period is tax year) using carry forward. Pension has been in place in previous years. Are there any other limits other than the HMRC wholly and justifiable remit ?

For example say in sales this company year earned £80,000, paid £13,500 in salary, 25k in dividends and had about 5k in other expenses could I still pay a large employee contribution of say 90k using carry forward ?

There are profits from previous years in company to cover payment.

A friend who also a contractor asked his accountant (mine isn't sure) and they came back saying must not put company at a loss in current company year so in above example could only pay max of £36,500 (may have this figure slightly wrong but key is that must not put company at loss) - is this correct ?

Done some searching and this rule is never mentioned in any articles that I have found, so would be great to get other peoples input.

Kind Regards

[northernladuk]

Does this answer your question?

http://forums.contractoruk.com/accou...ributions.html

Tip : Use the search as described in the thread below and not the search box on the page...

http://forums.contractoruk.com/welco...uk-forums.html

[Contreras]

Here you go:

http://forums.contractoruk.com/accou...y-pension.html

http://forums.contractoruk.com/accou...y-allowed.html

OP - must try harder.

NLUK - please update your search engine!

[northernladuk]

Feckity feck. Out searched by a young pretender.

[FarmerPalmer]

Why can't the directors of a company choose to disburse retained profit from previous years as dividends, or pay to it's employees (as pension contributions) if it can't forsee using that surplus to invest in future growth.

You could pay into a pension for retained profit from this tax year into a pension, and write off against this years tax but ...

Thinking along the lines of getting the most of the companies money as a director/owner

If you pay in an employers contribution, it would be net of tax, but as it is held profit from previous years then tax has already been paid, and there would be no tax benefit to you, unless you can reclaim from previous years.

It may be more tax efficient to pay out dividends to the shareholder(s) for any retained profit from previous years (where tax has already been paid) and then use this to make a personal contributions to a pension, so the pension company can claim tax back at the basic rate, and you can offset any high rate tax due on your tax return.


... subject to annual limits

[Craig at Nixon Williams]

We advise our customers against creating a tax loss when making employers contributions in favour of the director. In order to be deductible for CT, the expense must have been incurred for a trade purpose.

Contributions to a pension represent an element of the remuneration package for an employee/director of a company – if the business requires these people in order to exist/operate then their remuneration would be seen as a trading expenses. Company directors are in a unique position whereby they are responsible for setting their own remuneration levels – if a HMRC enquiry led them to the conclusion that the level of remuneration benefitted the director but did not benefit the company then they could seek to disallow tax relief on this.

Our interpretation is that the contributions must not cause the company to make a tax loss, as a loss would not be beneficial to the company but the pension contribution would benefit the directors.

Based on this, in the case of the OP; he could make a pension contribution of £61,500 as that will be his taxable profit for the year (based on figures stated) assuming that the company has retained earnings from prior years to cover the dividend. If there are sufficient funds then he could take a further dividend to fund a personal contribution of 80% of his salary (so £10,800) – so that after tax relief he will have added a total of £75k for the year.

Hope this helps!
Craig

[Contreras]

Reducing salary to £10,600 would save ~£350 in NICs, i.e. increase in profit.

Following Craig's calculation above, the company contribution increases to £64,750, personal contribution of £8,480 (tax relief £2,120) --> total £75,350 added to the pension pot.

[LimitedMan]

Thanks for all quick responses - great forum. It is Craigs reply that was referring to in my original post when mentioned making a loss - it sounds good advice but does not seem to come up in most of the examples I have seen on the web and also spoke to a pension adviser today who did not raise same concern and said if make a loss can be carried forward and there is no limit to the amount of loss you can make and will just take a couple of tax years to reclaim the tax relief fully.

Quite different interpretations of the same thing which I guess does not give a definitive answer and did not want to do anything that could later be construed as dodgy which leans me towards Craigs advice but does limit me considerably in terms of using carry forward.

Many thanks, any further thoughts welcome......