What's the issue with Company pension contributions?

[Hiram King Of Tyre]

I always thought they were free of Tax, has this changed since 6 April 2006?

[IR35 Avoider]

There isn't really an issue, though for a while after A-day HMRC were talking tough, but they've now backed down.

From A-day pension contributions have had to pass the same test as any other company expense, to be tax-deductible when calculating Corporation tax. The current advice is that if the company contributions are for a worker in a one-person company who's generated all that company's income via contracting, they cannot be excessive for the purposes of allowing them as an expense against Corporation tax. On the other hand, if he pays contributions to his wifes pension, meaning her overall remuneration (salary+pension) is more than the market rate for whatever work she does for the company, the excess would be disallowed as an expense.

There is an annual limit on how much can be put into a pension without incurring a penalty, but I'm assuming that's not the issue you are worried about, i.e. you were not thinking of putting more than a couple of hundred thousand per year into the pension.

[2uk]

Who cares about pension when there it is BTL ?

[SueEllen]

Who cares about pension when there it is BTL ?

You shouldn't put all your eggs in one basket.

[VectraMan]

Do the panel think pensions are really worth it for the likes of us?

[Hiram King Of Tyre]

My accountant advises that company contributions shouldn't be more than salary. On minimum wage, that's a bit of a liability

[Hex]

I reckon your accountant is out of date (at best). The idea of keeping it less than or equal to salary was around for a while, but now it is reckoned you can put in as much as you like.

[Hiram King Of Tyre]

How do I get a definative answer? I guess I could ask Hector

[SueEllen]

How do I get a definative answer? I guess I could ask Hector

Hex is right your accountant is out of date. The rules changed last year.
http://www.direct.gov.uk/en/MoneyTax...ons/DG_4017726

[IR35 Avoider]

Hex is right your accountant is out of date. The rules changed last year.
http://www.direct.gov.uk/en/MoneyTax...ons/DG_4017726

To be fair to his accountant, after the rule change HMRC did put out tax bulletins implying the rules didn't say what they appeared to say, and that people making excessive contributions, or making contributions for the wrong reasons, could have those disallowed. It is this position that HMRC have now backed down from. It remains the case that a contribution can be disallowed if there is a "non-trade purpose" for it, but that should be an issue only in exceptional circumstances. A contractor making employer contributions to his own pension out of fees he's generated can contribute as much as he likes.

It was never the case that employer contributions were limited to 100% of salary, but at the time HMRC were creating Fear Uncertaint and Doubt, when debating what was a safe level many people suggested 100% of salary because that is the limit for a personal contribution.