Pension Contributions - Closing Company

[MrContractor85]

My accountant was adamant that making a large pension payment just before closing your Ltd would not be allowable as an expense, so you'd pay Corp Tax on it. ie. they'd challenge it in your final set of Ltd Co accounts. Not sure how true that is or they were just being cautious.

My accountant said similar. Said it would be "risky" to make a large pension contribution before closing down as I haven't made any contributions before. Didn't give me any rationale for it either.

[rootsnall]

My accountant said similar. Said it would be "risky" to make a large pension contribution before closing down as I haven't made any contributions before. Didn't give me any rationale for it either.

I think the rationale is that you are only making the pension payment to avoid tax ( don't ask me to explain further ).

Not sure if this has been discussed and hopefully not giving you another worry but one thing I thought of ( as a shamateur ) if you go down the MVL route is that you will still have a lot of funds in your Ltd at a point in time when HMRC could challenge things ( ie. potential IR35 investigation ). Via other routes your Ltd is bare when the accounts get submitted.

[MrContractor85]

I think the rationale is that you are only making the pension payment to avoid tax ( don't ask me to explain further ).

Not sure if this has been discussed and hopefully not giving you another worry but one thing I thought of ( as a shamateur ) if you go down the MVL route is that you will still have a lot of funds in your Ltd at a point in time when HMRC could challenge things ( ie. potential IR35 investigation ). Via other routes your Ltd is bare when the accounts get submitted.

I always thought it was better to go with a "big" accountancy firm (they're not that big, just big with contractors) but if I was to do this again I'd probably go for a 1 man band who has a small shop on the high street! Few posters in this thread who have made more sense than they have in nearly 7 years

Contributing to a pension automatically protects those funds from any IR35 investigation even if they were to deem you inside, so a valid point

[WordIsBond]

I feel like sacking my accountant and employing you instead. Sad state of affairs when you get more knowledge and information from a forum than you do from an "accountant" you over £100 a month to.

It seems likely there are some things he knows that I don't, however.

But one more point on the above. My company year end was June so I've settled that CT bill but obviously will have to send final CT return once I decide how to close down my company. Using Fed's numbers, that 160k pension contribution which would would have otherwise been classed as revenue brings about a CT saving of 32k. So technically that 144k has cost an additional 32k in CT!

Well, obviously a pension contribution up to your profit this year saves CT and so is probably worth doing. Not so obviously but still true, if you didn't use your allowance in prior years, you can use it to make a pension contribution and carry back the loss for one year. So last year's profit could also be wiped out by pension contributions, allowing you to reclaim any CT paid on last year. And in most cases, I'd do that, too. Though perhaps it depends on how big your pension is, your age, etc. Because that pension will be taxable when you take it out.

Must admit I didn't completely get the point about dividend allowance/CG allowance as they obviously disappear when the company is no more. But on the ISA thing, you'd have 20k a year to contribute so that's over 7yrs before the total amount is invested vs. 160k being in an investment vehicle from day 1. If anyone is dealing with a company liquidation and has anything let's say over 100k surely it makes sense to split between making company pension contributions prior to sending final returns and then proceeding with an MVL for the residual

Ok, I'll get specific. You've got £144K after the MVL. You've got a £2K dividend allowance and a £12K CGT allowance, right?

So, the first thing you do is put £20K into an ISA, and invest it. Now, you've got £124K. You invest that, too. Let's say you put it all into funds. Let's put 30K into income-producing funds, and the rest in accumulation funds -- let's use trackers, for simplicity.

Your £30K income-producing funds produce, let's say, 6%. That gives you £1.8K in dividends -- covered by your dividend allowance. Maybe you do better, and they produce 8%. You've got £2.4K in dividends, and you have to pay div tax on £400, not a big deal.

Your remaining £94K is in accumulation trackers. At the end of the year, you sell £20K of that, selling those with the highest gains. If your gains are over £12K (unlikely, on £20K), you'll have some CGT. More likely, it won't be. But the £20K now goes inside your ISA, where you can buy the exact same funds, if you want.

If you didn't take the full £12K in gains (which is the most likely case), sell enough of your remaining funds to get to £12K in gains, and then reinvest them in a different but comparable tracker. Sell Vanguard, buy L&G, or whatever. The point is that if you have gains, you want to book them at the end of the tax year, up to £12K.

Now, you have £40K in your ISA, your remaining money is invested in funds outside the ISA, you've booked most of your gains (unless it was a really good year) without paying any tax, you've taken dividend income without paying any tax, and your ISA funds are growing. Do the same the next year -- some income producing (enough to use the div allowance), some growth producing (but managing your gains to avoid CGT and use the allowance), and keep funneling the max into your ISA every year.