Drawing down large net profit position into Pension

[7specialgems]

I want to move £50k from my company's net profit into a new SIPP.

This has been accumulating for several years.

Am I throttled by what ever the company's net profit is for the financial year that the payment is made in?

I assume making this payment would technically result in a loss for the financial year and I've read the posts on the forum using (keyword) site:forums.contractoruk.com for 'pension back payment loss'.

However I still don't understand if it is a no-no to make a loss on the current year's P+L if the loss is caused by paying net profit from previous years into a SIPP.

My accountant would not provide advice and insisted that I speak to their solitary/expensive IFA. Since I am looking to establish the rules I must play by, I felt that was excessive and I would do better to ask on here.

[IR35 Avoider]

Employer pension contributions aren't made out of profits, they are an expense at the time they are paid, just like salary. If your contribution is sufficiently large (when combined with other company expenses) that you make a loss for the year, you may be able to carry some of the loss back one year and reclaim Corporation Tax from the previous year. Any remaining unused loss can be carried forward to reduce your Corporation Tax in future years, assuming there turn out to be future years in which there is income to offset the carried forward loss.

So the companies profit or turnover for the current year do not affect what you are allowed to contribute, all that matters is how much spare cash you actually have to contribute, and whether you will be able to set any resulting loss off against other years if you make a loss this year.

There are pension rules that affect what you can contribute though. With regard to pension annual allowance, in order to contribute more than 40K in one tax year, you will need to be able to carry forward some unused allowance from previous years. For you to have unused allowance you must have had a pension scheme in those years and not have used up all your allowance. The pension scheme you had doesn't have to be the same one you are now contributing to.

[WordIsBond]

Only one point, in case it wasn't entirely clear from above, you can only carry back losses and reclaim Corporation Tax for one year. So if your loss (as a result of this pension contribution) from this year exceeds your profit from last year, the remainder has to be carried forward and set against future year profits.

That's not a problem if you are carrying on as before. It is a problem if you stop trading or get thrown permanently into IR35 by the 'reforms'. In that case, you wouldn't be able to get Corporation Tax relief on the entire amount of the contribution you make. If that looks likely to be a problem, you may be better off only making a company contribution for the amount for which you could claim CT relief, paying the rest as a dividend, paying the dividend tax on it, and then making a personal contribution instead. Paying higher rate dividend tax (32.5%) and then recovering higher rate income tax (40%) on your pension contribution is better than receiving no tax relief on it at all.

The numbers change, of course, if this puts you into additional rate range. And it is all irrelevant if you have enough profit from this year and last to cover the entire £50K.