Pension

[THEPUMA]

Since April 2006 you've always been able to pay in what you want - in theory. The limits that are applied, max 100% of salary or £225,000 per annum are the contribution levels that will benefit from tax relief, so a bit pointless contributing over these levels. Unless of course it's the year in which you are going to take benefits in which case you can contribute whatever you like and obtain tax relief on the whole amount - but again the lifetime limit (max you can hold in a pension without incurring onerous tax charges) is £1.6m, so don't contribute more than that!!!!! Plenty of scope i think.

That is not correct. HMRC have specifically stated that you will not necessarily get corporate tax relief for pensions following A-Day. You have to go back to fundamental tax principles (for the purpose of the trade, etc) in order to establish whether or not the contribution is tax-deductible.

I am aware of at least one case where HMRC are challenging deductibility.

[vhadiant]

Benefit is marginal and next tax year it will definitely be better to make contributions via the company, so it might not be worth the hassle of setting up personal contributions and then switching to company contributions next April. Depends how bothered you are about saving a few quid...

Thanks! I kinda lost you a bit in the middle Never good at this money thing! But that last paragraph is assuring. OK in that case I'll do a company contribution, it's not going to be much different anyway. What important is keep adding into the Pension fund.

[glashIFA@Paramount]

That is not correct. HMRC have specifically stated that you will not necessarily get corporate tax relief for pensions following A-Day. You have to go back to fundamental tax principles (for the purpose of the trade, etc) in order to establish whether or not the contribution is tax-deductible.

I am aware of at least one case where HMRC are challenging deductibility.

Which bit are you saying is not correct?

HM Revenue & Customs has published guidance confirming that employers’ payment of pension contributions qualifies as a normal business expense, meaning the majority will qualify for tax relief.
The guidance governs when employers receive tax relief on contributions to registered pension schemes.
Under A-Day rules the Revenue decided any employer pension contribution will only receive corporation tax relief if it is “wholly and exclusively” for the purposes of the business.
This led to concerns that it may be difficult for employers in certain situations to pass the “wholly exclusively test”.
A contribution or part of a contribution will not receive tax relief only where there is an identifiable non-business purpose for the employer’s decision to make the contribution to a registered scheme, or for the size of the contribution. This could include when an employer contribution is paid in respect of a controlling director or an employee who is a relative or close friend of the business proprietor or controlling director.
The guidance says the local inspector should look for evidence that the contributions is purely business related, including whether the level of remuneration package reflects the value of the work undertaken by the individual in question for the employer.
It is clear from the Revenue’s guidance that the vast majority of pension contributions will receive full tax relief.

[THEPUMA]

max 100% of salary or £225,000 per annum are the contribution levels that will benefit from tax relief,

that bit. if you'd added probably in, between "will" and "benefit" it would be fine.

[IR35 Avoider]

I am aware of at least one case where HMRC are challenging deductibility

Any details? Is this a contractor contributing to his own pension? A contractor contributing to his wife's pension?

[THEPUMA]

Any details? Is this a contractor contributing to his own pension? A contractor contributing to his wife's pension?

No details at all I'm afraid. I was just talking to another accountant about it and he mentioned that he was defending a case.

[IR35 Avoider]

No details at all I'm afraid. I was just talking to another accountant about it and he mentioned that he was defending a case.

Can you ask?

My understanding, which corresponds to PCG advice, is that the position that HMRC have rowed back to is that they will consider remuneration as a whole (i.e. ignoring the split between salary and pension) and only disallow some or all of it if it is excessive. For a one person company, where that person generates all the income, it is impossible for the remuneration to be excessive.

There is still the possibility of HMRC identifying a non-trade purpose, but that relies on the contractor saying something stupid. I think HMRC have realised that if they pursue their line re. purpose they will end up in an absurd position. Originally they said that if tax-avoidance was a motive they would disallow the contribution. Well why would anyone put money in a pension (as opposed to saving elsewhere) unless they were motivated by tax avoidance? Saying people can't contribute to pensions if they are intending to save tax by doing so amounts to saying that controlling directors cannot contribute at all. That surely can't be what the government intended when they reformed pensions.

Edit: (cut and past from accountingweb:-)

In BIM47106 (http://www.hmrc.gov.uk/manuals/bimmanual/BIM47106.htm), HMRC state: "Where the controlling director is also the person whose work generates the company's income then the level of the remuneration package is a commercial decision and it is unlikely that there will be a non-business purpose for the level of the remuneration package.

Edit 2: the accountingweb thread, requires registration:-

http://www.accountingweb.co.uk/cgi-b....cgi?id=169569

[THEPUMA]

Can you ask?

My understanding, which corresponds to PCG advice, is that the position that HMRC have rowed back to is that they will consider remuneration as a whole (i.e. ignoring the split between salary and pension) and only disallow some or all of it if it is excessive. For a one person company, where that person generates all the income, it is impossible for the remuneration to be excessive.

There is still the possibility of HMRC identifying a non-trade purpose, but that relies on the contractor saying something stupid. I think HMRC have realised that if they pursue their line re. purpose they will end up in an absurd position. Originally they said that if tax-avoidance was a motive they would disallow the contribution. Well why would anyone put money in a pension (as opposed to saving elsewhere) unless they were motivated by tax avoidance? Saying people can't contribute to pensions if they are intending to save tax by doing so amounts to saying that controlling directors cannot contribute at all. That surely can't be what the government intended when they reformed pensions.

Edit: (cut and past from accountingweb:-)



Edit 2: the accountingweb thread, requires registration:-

http://www.accountingweb.co.uk/cgi-b....cgi?id=169569

I will ask. He is currently on holiday but I will check on his return. I doubt that the client was a one person comapny, knowing his client base.

There was an article in Taxation last week on this subject. I'm not sure if I can copy it for copyright reasons but I will check if I get the chance tomorrow.

One of the points it made was that if you made £100K last year and £100K and then tried to make a pension contribution of £200K (say) this year and carry this back to last year in order to procure a tax refund, that this is likely to be disallowed.

I think I would personally advise clients to restrict their total remuneration package to no more than 80% (pretty arbitrary I know) of their profits in the period in question. That then means that the employer is making a profit on the deal which should make it hard for HMRC to successfully challenge using the business purpose test.

[glashIFA@Paramount]

that bit. if you'd added probably in, between "will" and "benefit" it would be fine.

If people are taking advice on what they can contribute and how they can contribute then there's no need to add "probably". The rules for "relevant" contribs are quite clear.

[glashIFA@Paramount]

[QUOTE=THEPUMA;290186]I
One of the points it made was that if you made £100K last year and £100K and then tried to make a pension contribution of £200K (say) this year and carry this back to last year in order to procure a tax refund, that this is likely to be disallowed.

Carry back of contributions is no longer allowed so this scenario couldn't happen.