Employer Contributions to Personal Pension

[Pennington]

I have been making employer contributions from my limited company (I am the director) to my personal pension.

My accountant believes these payments are not tax deductible against corportation tax because it is not an occupational pension.

My IFA, who set up the pension for me, believes the contributions do qualify as tax deductible business expenses.

The employer contributions do exceed my paid salary but do not exceed the personal allowance of £50,000.

I have done some research and believe that they do qualify for corporation tax relief upon the permission of the local tax authority.

Does anyone have an informed opinion about this?

Thank you.

[malvolio]

I have been making employer contributions from my limited company (I am the director) to my personal pension.

My accountant believes these payments are not tax deductible against corportation tax because it is not an occupational pension.

My IFA, who set up the pension for me, believes the contributions do qualify as tax deductible business expenses.

The employer contributions do exceed my paid salary but do not exceed the personal allowance of £50,000.

I have done some research and believe that they do qualify for corporation tax relief upon the permission of the local tax authority.

Does anyone have an informed opinion about this?

Thank you.

So you have a qualified (presumably) accountant on one hand and a qualified and licensed (presumably) IFA on the other, telling you different things. Why do you think we would know the authoritative answer?

FWIW I'm with the accountant. I use a director's pension scheme when I was stashing the money away, gets around all these idiot restrictions on personal ones, in which I have no interest.

[captainham]

FWIW I'm with the accountant.

I'm with the IFA.

http://www.nixonwilliams.com/images/...tributions.pdf

[SueEllen]

Two different people two different opinions.

Pennington if you are going to stick with what your IFA says then you will need to find another accountant, as the accountant rightly will refuse to do your books that way.

[IR35 Avoider]

The answer is that you can make employer contributions and get corporation tax relief.

For a year or two after Gordon Brown removed all upper limits on contributions sizes in 2006, HMRC did create some doubts as to whether they would allways give full corporation tax relief to large contributions, but this was ultimately clarified in favour of contractors. My understanding is than an employer contribution paid out of fees you have personally generated for the company will never be considered excessive.

The following Scottish Life page I just found is particularly good on this subject:-

Employer contributions and tax relief

Controlling directors can control how much remuneration they take from the business and the proportion that is taken in the form of salary, bonus, dividends and pension contributions. In particular, a controlling director may decide to take a small salary and the bulk of their remuneration as dividends for tax and national insurance reasons. Does that mean they have restricted the scope for tax relievable employer contributions?

The short answer is no. As long as it can pass the ‘wholly and exclusively’ test, an employer contribution will benefit from corporate tax relief.

The first step for HMRC is to establish whether the level of the total remuneration package i.e. salary, bonuses, commission, benefits in kind and pension contributions is commercially reasonable for the work done. Where a controlling director is the driving force behind the company and whose work generates the company’s income (e.g. where the controlling director is the sole owner and employee), the level of the remuneration package is a commercial decision and is unlikely to fail the test. A large employer pension contribution (in comparison to salary) may therefore be able to be claimed as an expense of the company.

However, the employer's contribution is deducted from the employer’s trading profits for tax purposes and can normally only be applied to the period of account in which it is paid.

[Pennington]

I'm with the IFA.

http://www.nixonwilliams.com/images/...tributions.pdf

Thanks, Captainham, that leaflet is very useful.

[Pennington]

The answer is that you can make employer contributions and get corporation tax relief.

For a year or two after Gordon Brown removed all upper limits on contributions sizes in 2006, HMRC did create some doubts as to whether they would allways give full corporation tax relief to large contributions, but this was ultimately clarified in favour of contractors. My understanding is than an employer contribution paid out of fees you have personally generated for the company will never be considered excessive.

The following Scottish Life page I just found is particularly good on this subject:-

Employer contributions and tax relief

Also very useful, IR35 Avoider, thanks.