Company Pension Contributions From Retained Funds Rather Then This Years Profits

[stovefan]

Hi

This is my first post so please be gentle

I have been a contractor for quite a while but only started putting money in a company pension in the last 3 years (and backdated another 3 years).
My company year ends in September and the financial year on April 5th.
My contract expired at the end of the December so I have only billed 3 months (so far) of the company year and its uncertain whether I will get another contract this year.
My wife is also a contractor through out company but in a different field and is still working but brings in significantly less than I.

I have a large amount of funds in the business account and I asked my accountant whether I could pay 40K into our company pensions for both myself and my wife (as we have done for the last 3 years) but he advised me that pension contributions must be paid from profits in the current company year (rather than retained funds) and as I cant be sure whether I will get another contract, he would advise against paying in any pension contributions as HMRC would frown on this as it would show the company as making a large loss.

Im 54 years of age so Im keen to maximise the amounts I put into my pension (this is not about reducing CT although that does help).

So my questions are:

(a) Is it correct that pension contributions must be paid from profits made this year (as opposed to just using retained company funds).

(b) If it is correct, and therefore I cannot make the pension contributions before April 5th, if I later get a contract, can I pay pension contributions for the previous financial year, or is that year lost forever to me.

Any help would be appreciated.

Thanks.

[northernladuk]

Many many threads on this topic already. They should at least get you a foundation if not answer your question fully. Your wife could cause complications though as backdating 40k a year for someone who is being paid 10k a year could be a problem. You haven't said what the situation is so I'm guessing there.

Use the search method that uses google to trawl the forums.

Use something like

backdate pension site:forums.contractoruk.com

1000's of results for that term and probably more if you play with the search term. For example ..

wife backdate pension site:forums.contractoruk.com

Brings back a load of threads highlighting the possible issue with the wife.

[Cirrus]

HMRC - Nice People

(a) Is it correct that pension contributions must be paid from profits made this year (as opposed to just using retained company funds).

No. I can vouch for that as the Revenue lodged a big transfer into my company account for refunded CT.

[stovefan]

No. I can vouch for that as the Revenue lodged a big transfer into my company account for refunded CT.

Hi Cirrus, I see you posted some similar questions. Could you just expand on your answer. Are you saying that company pension payments can be made from retained funds (rather than profits in the current year) ?

Thanks.

[fuhector]

Hi

(a) Is it correct that pension contributions must be paid from profits made this year (as opposed to just using retained company funds).

Thanks.

No, it is not correct. Last year a colleague of mine contributed £170k into her pension fund (£40k current year + £130k carried forward allowance) which was way more than her company's income for the year, so the company made a substantial loss and got a Corporation Tax refund from HMRC.

Speak to a financial advisor.

[grabri]

No, it is not correct. Last year a colleague of mine contributed £170k into her pension fund (£40k current year + £130k carried forward allowance) which was way more than her company's income for the year, so the company made a substantial loss and got a Corporation Tax refund from HMRC.

Speak to a financial advisor.

Which would suggest it is correct, i.e. the pension contributions came from that year's earnings, not retained profits....

[mudskipper]

Which would suggest it is correct, i.e. the pension contributions came from that year's earnings, not retained profits....

eh?

[ASB]

Which would suggest it is correct, i.e. the pension contributions came from that year's earnings, not retained profits....

No it doesnt suggest that at all. The contributions are a corporate expense (usually) and are offsetable.

[stovefan]

Hi

I spoke to the tax helpline at IPSE and they agreed with my accountant, that their should be sufficient profit in the current financial year as to not make a substantial loss due to applying pension contributions being the main cause of that loss.

I (like others) have previosly backdated pension contributions and incurred a small loss along the way by doing so. In this case, we are talking about the current year and not having enough profit to support it.

The advisor did say, that in the event that I did get a contract after April and had sufficient turnover, there is nothing to stop me backdating another years contributions (ie for the tax year 2017-2018) and this must be done before looking at the year 2018-2019.

Thx to all who replied - Stovefan

[adubya]

My accountant advised against incurring a financial loss in an accounting year due to a whopping company pension contribution.

I am minded to follow his advice.