Pensions and Corp tax

[rootsnall]

Not really TBH. Current guidance from the revenue suggest that anything paid out of gross profits would be for the puroses of trade (and that is the key point in whether they are allowable for CT purposes).

Some accountants do advice a more cautious approach.

Mine was more cautious, but has changed their stance with the changes to current guidance.

'for the purposes of trade' was the phrase I was looking for !

In other words you can reward an employee in salary + direct pension contributions up to what is regarded as a normal salary package for their skillset. Anything more than that is not 'for the purposes of trade' and therefore not allowable for CT purposes.

Rightly or wrongly I'm working on 50K as OK 'for the purposes of trade'.

I'll struggle to earn 50K at the moment anyway

[Olly]

Just like to pipe in to say I had this conversation with Quay (Clear Sky) a few days ago and their exact advice was

"Our general advice is that pension contributions should be kept in line with salary. If they are too much higher, or out of proportion with prior years, you run the risk of HMRC challenging them for being not within the purposes of trade and disallowing them"

I believe this to mean on basic rate salary they recommend a salary contribution by your limited of around 6.5K

Which HMRC links do you think I ought to point them as prefer the answer posted above i.e. 45K is more like it!

[moorfield]

I've always put =salary into pension (~6k this year), but only after I've filled up ISAs and warchest/retained profit first.

[Olly]

I've always put =salary into pension (~6k this year), but only after I've filled up ISAs and warchest/retained profit first.

Why though? Because that's what you can afford or because of some (un)written rule?

[IR35 Avoider]

We debated this a week or two back. After talking to my accountant ( and others ) the 'reasonable' amount you are referring to appears to be that the total of your salary + Co pension contributions must not be more than what would be considered an acceptable salary for your role. So if the going salary for your skillset is say 50K then you could pay 44K in Co pension contributions before the taxman could possibly question it. Does that make sense !?

I think some accountants are being too cautious, possibly because they are remembering out-of-date HMRC bulletins rather than relying on their most recent clarifications. The PCG advice (as I remember it) is that any amount paid out of fees you have personally generated for the company will not be excessive. (The "reasonable" limits would apply to a non-fee generating company secretary, however.)

HMRC have said (after earlier creating FUD by saying the opposite) that they will look at the total of pension and salary, not the split. Since I can't see them penalising a contractor for paying everything as salary, they shouldn't penalise anyone for paying everything as pension contributions. (On the other hand, either pension or salary paid to a non-fee generator could well be found to be excessive and therefore disallowed.)

[Olly]

I think some accountants are being too cautious, possibly because they are remembering out-of-date HMRC bulletins rather than relying on their most recent clarifications. The PCG advice (as I remember it) is that any amount paid out of fees you have personally generated for the company will not be excessive. (The "reasonable" limits would apply to a non-fee generating company secretary, however.)

HMRC have said (after earlier creating FUD by saying the opposite) that they will look at the total of pension and salary, not the split. Since I can't see them penalising a contractor for paying everything as salary, they shouldn't penalise anyone for paying everything as pension contributions. (On the other hand, either pension or salary paid to a non-fee generator could well be found to be excessive and therefore disallowed.)

Pretty please to you have links or copies of the actually info supplied by HMRC?

[ASB]

Pretty please to you have links or copies of the actually info supplied by HMRC?

[ducks for cover]

Search, one of the accountants posted it up recently. I do appreciate it can be hard to find in all the threads on this subject. I also understand that actually finding it on HMRC web site is bloody difficult!

Here's some for starters:-

http://forums.contractoruk.com/accou...rpose+of+trade

See bradley at 16:53 16/11/06.

Some guidance from HMRC (may not be current): http://www.hmrc.gov.uk/manuals/ctmanual/CTM08341.htm

See also the comments from freelance financials.

Try and find BIM446001 on HMRC

Theres loads of others but this might get you in the right direction.