Pensions and accountants - am I going daft?

[glashIFA@Paramount]

The HMRC business income manual http://www.hmrc.gov.uk/manuals/bimmanual/BIM46035.htm basically says that all pension contributions are allowable unless there is a "non-trade purpose". It also says that the "whole" remuneration package needs to be considered - i.e. wages plus pensions and benefits. There is absolutely no indication of any link at all to the actual wages level paid. So if a director would have a comparable "package" of say £60,000 in the open market, then a wage of £5k and pension contributions of £55k are perfectly acceptable. This was confirmed on a course I went on given by a well known and respected tax author/consultant who went further and said that the maximum "remuneration" for a director/shareholder was probably as high as the profits made by the company that year - so if the company earned £100k in profits, then a salary of £5k and pension contributions of £95k was acceptable even if the open market worth of the director was only £60k. All this, of course, assumes that it is a sole shareholder/director - the grounds being that without him/her the company would have made nothing at all, so he/she must be "worth" the amount of profit generated. Of course, none of this automatically applies to spouses who are not "fee earners" - they will be dealt with under the long established existing rules of only being able to have a "package" worth their open market value so if a spouse is an administrator and could realistically earn £20k, then their "package" would be limited accordingly, i.e. £5k salary and £15k pension - any excess being for "non trade purposes".

That's it. You can contribute whatever you want - the issue is about what qualifies for tax relief. Depends whether its an employee or an employer contribution. An employee is limited to 100% of salary or £3,600 whichever is greater per annum (dividends don't count as salary). An employer can contribute 100% of remuneration as above, and pension contribs made by an employer are remuneration. Of course, if the contribution is being made in the year you expect to take benefits then there is no limit on the level of allowable contribution. the current annual allowance for the 08/09 tax year is £235,000. If you're on a low salary and high divis then salary sacrifice isn't worth the bother. As for EPPs - they come under occupational scheme legislation, reporting to HMRC etc. and the main reason for EPPs in the past has always been for high levels of contribs pre A-day. Now that the contribution limit has been increased substantially which erases one of the main reasons for EPPs in the past, it's highly likely that we will see the demisse of EPPs and providers will cease to provide them. However, if you have an existing EPP you still need to take advice regarding the tax free cash limit which may well be higher than the current regime of 25% of fund.

[Alan @ BroomeAffinity]

Time to change accountants perhaps? Know of any good, helpful ones...?

I was thinking that but didn't say it for fear of being accused of spamming!

[the_rangdo]

I'm going to see out this gig first (Dec) then see what happens after that.

Long way of saying, for the moment, CBA