Reply to: Company Pension Contributions From Retained Funds Rather Then This Years Profits

[Cirrus]

It is easier for a camel to pass through the eye of a needle etc

Stovie, can I just say - on behalf of everyone on this channel: thank you very, very much for making a big voluntary donation to HMRC's funds. Not only will you be making a huge contribution to the disenfranchised of this Mad Max dystopian wasteland of a country after Brexit, but more importantly you'll be saving the rest of us from paying quite as much tax as we otherwise might have to.

Good on yer!

[WordIsBond]

Him Ciirrus/Craigy

As I said, I spoke to the tax helpline at IPSE and they were clear that they are against this (as is my accountant).

Im also see that another poster was recommended against doing this.

So I may be slow on the uptake but just happy to err on the side of caution

Thx - stovefan.

Mate, there's a wide blue sea of difference between "you can't" and "I am happy to err on the side of caution." Especially when the legislation makes no such restriction and many people have done it.

[stovefan]

Him Ciirrus/Craigy

As I said, I spoke to the tax helpline at IPSE and they were clear that they are against this (as is my accountant).

Im also see that another poster was recommended against doing this.

So I may be slow on the uptake but just happy to err on the side of caution

Thx - stovefan.

[craigy1874]

Hi

I think some of the replies are focussed on reclaiming CT but this was outisde the scope of my question.

In summary, the main thing here is that you cant stick £40K in a company pension if you havent made 40K profit in that company year (regardless of how much is in the company account). This is different to backdating for previous years, based on a healthy current year turnover.

Of course there is nothing to stop me from making the contributions by taking dividends and then paying the amount from that, but since I believe I will get another contract, I will wait and backdate the contributions for 2017-2018 when ready.

Tx - Stovefan.

Jesus, if that is what you are gathering from the responses, I fear for you...

[Cirrus]

In summary, the main thing here is that you cant stick £40K in a company pension if you havent made 40K profit in that company year

You are a bit slow on the uptake, aren't you? Several people have categorically said yes you can and they've done it.

The CT just proves the Revenue are used to this.

[stovefan]

Hi

I think some of the replies are focussed on reclaiming CT but this was outisde the scope of my question.

In summary, the main thing here is that you cant stick £40K in a company pension if you havent made 40K profit in that company year (regardless of how much is in the company account). This is different to backdating for previous years, based on a healthy current year turnover.

Of course there is nothing to stop me from making the contributions by taking dividends and then paying the amount from that, but since I believe I will get another contract, I will wait and backdate the contributions for 2017-2018 when ready.

Tx - Stovefan.

[craigy1874]

I agree it is fine and I would advise my clients to do it.

However, CT is under self-assessment which is process now, check later.

So just because you get a repayment, it doesn't mean it has gone through on the nod, there could still come an enquiry anytime up to 1 year from the date you submitted the Ct600.

[Cirrus]

Are you saying that company pension payments can be made from retained funds (rather than profits in the current year) ?

I decided to take three years' pension contributions (approx £140k) but was too late to squeeze it into a good year. I therefore put it into the subsequent year (when I'd stopped working). My accountant said you'll be OK unless the Revenue think you're dormant or ceased trading so I got a little number in the City to bring some revenue. However it was much less than £140k. We put in the big pension figure thus making a substantial loss. The Revenue dumped the full whack of CT refund into my company a month later; no questions asked. You can only go back one year so when I shoved in another load of pension in the next year I couldn't get any respective CT refund.

So whatever the rules might be, all I can tell you is I got my CT refund without any issues.

[IR35 Avoider]

I don't think there's any requirement for pension contributions to be made in the same financial year as the earnings that support them.

I have in the past made a loss paying pension contributions and carried some of the loss back, reclaiming corporation tax from the previous year. (Though it was a long time before HMRC actually coughed up the cash.)

[adubya]

My accountant advised against incurring a financial loss in an accounting year due to a whopping company pension contribution.

I am minded to follow his advice.

[stovefan]

Hi

I spoke to the tax helpline at IPSE and they agreed with my accountant, that their should be sufficient profit in the current financial year as to not make a substantial loss due to applying pension contributions being the main cause of that loss.

I (like others) have previosly backdated pension contributions and incurred a small loss along the way by doing so. In this case, we are talking about the current year and not having enough profit to support it.

The advisor did say, that in the event that I did get a contract after April and had sufficient turnover, there is nothing to stop me backdating another years contributions (ie for the tax year 2017-2018) and this must be done before looking at the year 2018-2019.

Thx to all who replied - Stovefan

[ASB]

Which would suggest it is correct, i.e. the pension contributions came from that year's earnings, not retained profits....

No it doesnt suggest that at all. The contributions are a corporate expense (usually) and are offsetable.

[mudskipper]

Which would suggest it is correct, i.e. the pension contributions came from that year's earnings, not retained profits....

eh?

[grabri]

No, it is not correct. Last year a colleague of mine contributed £170k into her pension fund (£40k current year + £130k carried forward allowance) which was way more than her company's income for the year, so the company made a substantial loss and got a Corporation Tax refund from HMRC.

Speak to a financial advisor.

Which would suggest it is correct, i.e. the pension contributions came from that year's earnings, not retained profits....

[fuhector]

Hi

(a) Is it correct that pension contributions must be paid from profits made this year (as opposed to just using retained company funds).

Thanks.

No, it is not correct. Last year a colleague of mine contributed £170k into her pension fund (£40k current year + £130k carried forward allowance) which was way more than her company's income for the year, so the company made a substantial loss and got a Corporation Tax refund from HMRC.

Speak to a financial advisor.