Company Pensions contributions

[ryktnk]

hi,
we have 2 directors limited company [50% share each and both takes salary] which has NET PROFIT about £150k.

recently thinking about paying into SIPP through company.
is the annual £50k limit is for each director? [so we can contribute £100k in total ]
or £50k is the limit for the whole company? [so we can contribute £25k for the each director, total £50k].

many thanks
Ryk

[ASB]

Per person. Dropping to 40k soon. To be allowable for CT the contributions have to be for the purposes of trade, not generally a problem but worth reading the guidance HMRC give.

[Craig at Nixon Williams]

Are both directors of the company fee earning? Or is it structured in this way because of some kind of personal connection? If there is a personal connection then you should ensure that the contribution is at a commercial rate (i.e. no more than you would pay if the arrangement was at arm’s length).

Craig

[ryktnk]

Per person. Dropping to 40k soon. To be allowable for CT the contributions have to be for the purposes of trade, not generally a problem but worth reading the guidance HMRC give.

thank you for the help, what dose "purposes of trade" mean???

[TheCyclingProgrammer]

thank you for the help, what dose "purposes of trade" mean???

Pension contributions have to pass the same "wholly and exclusively" test that all other business expenses do to be allowable for a CT deduction.

I'm not sure under what circumstances a director's pension contribution would be deemed "not wholly and exclusively" for business purposes. As mentioned already, in most circumstances pension contributions would be tax deductible, but you may want to have a read of this:

BIM46030 - Specific deductions: pension schemes: wholly & exclusively: introduction

Particularly:

It will be relatively rare in the context of pension contributions to have to consider whether there is a non-trade purpose for the employer's decision to make the contribution. The guidance that follows considers circumstances in more detail where there may be a non-trade purpose for contributions.

[Martin at NixonWilliams]

thank you for the help, what dose "purposes of trade" mean???

Contributions NOT made for the purpose of trade are generally contributions made on behalf of a controlling director (or close associate) at a disproportionately high level, or where contributions are made in connection with the sale or cessation of a trade.

[northernladuk]

Contributions NOT made for the purpose of trade are generally contributions made on behalf of a controlling director (or close associate) at a disproportionately high level, or where contributions are made in connection with the sale or cessation of a trade.

Which would mean that the dump the money in to a pension when closing the business isn't really the thing to do?

[ASB]

Which would mean that the dump the money in to a pension when closing the business isn't really the thing to do?

Possibly. But generally for directors HMRC take the view that HOW the overall remuneration is split between pension and salaries is not an indicator of whether it is for trade or not.

[Martin at NixonWilliams]

Which would mean that the dump the money in to a pension when closing the business isn't really the thing to do?

It would be fine to an extent, providing the overall remuneration package is not unreasonable.

An example of what is likely to be disallowed is a company that is closing and has made contributions in excess of the profit for the closing period with a view to carrying back the loss (created by the contributions) to earlier years to try and obtain tax relief.