Reply to: Pension

[minstrel]

Anyone know if this is still the situation, or has Gordon and Alistair's recent tax announcements introduced any complications, moved the goalposts or muddied the waters?

As far as I'm aware the recent tax announcements haven't changed the situation.

Theoretically most efficent to make contributions personally this year and then via the company next tax year.

If you are setting it up now it's hardly worth the hassle of switching so probably easiest to just make company contributions.

[Kess]

Next tax year CT will be 21% and basic rate tax will only be 20%, so then it would be better to make the contribution via the company.

Anyone know if this is still the situation, or has Gordon and Alistair's recent tax announcements introduced any complications, moved the goalposts or muddied the waters?

[minstrel]

I think I will go into the higher tax band in this financial year.

It looks like it will then be more beneficial to make a personal pension contribution into my SIPP rather than through the company (ie 40% versus 20% corp tax relief).

So should I make 100% of the contribution personally?

thanks

Yes - you are slightly better off making the contribution personally. This applies even if you don't go into the higher rate tax band.

[achillea]

best option for higher rate tax payer

I think I will go into the higher tax band in this financial year.

It looks like it will then be more beneficial to make a personal pension contribution into my SIPP rather than through the company (ie 40% versus 20% corp tax relief).

So should I make 100% of the contribution personally?

thanks

[someone has my name]

thanks for all the advice...
I have decided to keep my stake holder personal, and not
contribute from my company.

[glashIFA@Paramount]

[QUOTE=THEPUMA;290615]I'm not quite sure what the point is that you are trying to make. I am simply saying that a company will not necessarily get corporation tax relief if it makes a pension contribution of £225K.



Not trying to make any point - all i said was that £225K was the maximum annual allowance for tax relief - which it is.

[THEPUMA]

If people are taking advice on what they can contribute and how they can contribute then there's no need to add "probably". The rules for "relevant" contribs are quite clear.

I'm not quite sure what the point is that you are trying to make. I am simply saying that a company will not necessarily get corporation tax relief if it makes a pension contribution of £225K.

Carry back of contributions is no longer allowed so this scenario couldn't happen.

I was talking about carrying back the loss for corporation tax purposes.

[glashIFA@Paramount]

[QUOTE=THEPUMA;290186]I
One of the points it made was that if you made £100K last year and £100K and then tried to make a pension contribution of £200K (say) this year and carry this back to last year in order to procure a tax refund, that this is likely to be disallowed.

Carry back of contributions is no longer allowed so this scenario couldn't happen.

[glashIFA@Paramount]

that bit. if you'd added probably in, between "will" and "benefit" it would be fine.

If people are taking advice on what they can contribute and how they can contribute then there's no need to add "probably". The rules for "relevant" contribs are quite clear.

[THEPUMA]

Can you ask?

My understanding, which corresponds to PCG advice, is that the position that HMRC have rowed back to is that they will consider remuneration as a whole (i.e. ignoring the split between salary and pension) and only disallow some or all of it if it is excessive. For a one person company, where that person generates all the income, it is impossible for the remuneration to be excessive.

There is still the possibility of HMRC identifying a non-trade purpose, but that relies on the contractor saying something stupid. I think HMRC have realised that if they pursue their line re. purpose they will end up in an absurd position. Originally they said that if tax-avoidance was a motive they would disallow the contribution. Well why would anyone put money in a pension (as opposed to saving elsewhere) unless they were motivated by tax avoidance? Saying people can't contribute to pensions if they are intending to save tax by doing so amounts to saying that controlling directors cannot contribute at all. That surely can't be what the government intended when they reformed pensions.

Edit: (cut and past from accountingweb:-)



Edit 2: the accountingweb thread, requires registration:-

http://www.accountingweb.co.uk/cgi-b....cgi?id=169569

I will ask. He is currently on holiday but I will check on his return. I doubt that the client was a one person comapny, knowing his client base.

There was an article in Taxation last week on this subject. I'm not sure if I can copy it for copyright reasons but I will check if I get the chance tomorrow.

One of the points it made was that if you made £100K last year and £100K and then tried to make a pension contribution of £200K (say) this year and carry this back to last year in order to procure a tax refund, that this is likely to be disallowed.

I think I would personally advise clients to restrict their total remuneration package to no more than 80% (pretty arbitrary I know) of their profits in the period in question. That then means that the employer is making a profit on the deal which should make it hard for HMRC to successfully challenge using the business purpose test.

[IR35 Avoider]

No details at all I'm afraid. I was just talking to another accountant about it and he mentioned that he was defending a case.

Can you ask?

My understanding, which corresponds to PCG advice, is that the position that HMRC have rowed back to is that they will consider remuneration as a whole (i.e. ignoring the split between salary and pension) and only disallow some or all of it if it is excessive. For a one person company, where that person generates all the income, it is impossible for the remuneration to be excessive.

There is still the possibility of HMRC identifying a non-trade purpose, but that relies on the contractor saying something stupid. I think HMRC have realised that if they pursue their line re. purpose they will end up in an absurd position. Originally they said that if tax-avoidance was a motive they would disallow the contribution. Well why would anyone put money in a pension (as opposed to saving elsewhere) unless they were motivated by tax avoidance? Saying people can't contribute to pensions if they are intending to save tax by doing so amounts to saying that controlling directors cannot contribute at all. That surely can't be what the government intended when they reformed pensions.

Edit: (cut and past from accountingweb:-)

In BIM47106 (http://www.hmrc.gov.uk/manuals/bimmanual/BIM47106.htm), HMRC state: "Where the controlling director is also the person whose work generates the company's income then the level of the remuneration package is a commercial decision and it is unlikely that there will be a non-business purpose for the level of the remuneration package.

Edit 2: the accountingweb thread, requires registration:-

http://www.accountingweb.co.uk/cgi-b....cgi?id=169569

[THEPUMA]

Any details? Is this a contractor contributing to his own pension? A contractor contributing to his wife's pension?

No details at all I'm afraid. I was just talking to another accountant about it and he mentioned that he was defending a case.

[IR35 Avoider]

I am aware of at least one case where HMRC are challenging deductibility

Any details? Is this a contractor contributing to his own pension? A contractor contributing to his wife's pension?

[THEPUMA]

max 100% of salary or £225,000 per annum are the contribution levels that will benefit from tax relief,

that bit. if you'd added probably in, between "will" and "benefit" it would be fine.

[glashIFA@Paramount]

That is not correct. HMRC have specifically stated that you will not necessarily get corporate tax relief for pensions following A-Day. You have to go back to fundamental tax principles (for the purpose of the trade, etc) in order to establish whether or not the contribution is tax-deductible.

I am aware of at least one case where HMRC are challenging deductibility.

Which bit are you saying is not correct?

HM Revenue & Customs has published guidance confirming that employers’ payment of pension contributions qualifies as a normal business expense, meaning the majority will qualify for tax relief.
The guidance governs when employers receive tax relief on contributions to registered pension schemes.
Under A-Day rules the Revenue decided any employer pension contribution will only receive corporation tax relief if it is “wholly and exclusively” for the purposes of the business.
This led to concerns that it may be difficult for employers in certain situations to pass the “wholly exclusively test”.
A contribution or part of a contribution will not receive tax relief only where there is an identifiable non-business purpose for the employer’s decision to make the contribution to a registered scheme, or for the size of the contribution. This could include when an employer contribution is paid in respect of a controlling director or an employee who is a relative or close friend of the business proprietor or controlling director.
The guidance says the local inspector should look for evidence that the contributions is purely business related, including whether the level of remuneration package reflects the value of the work undertaken by the individual in question for the employer.
It is clear from the Revenue’s guidance that the vast majority of pension contributions will receive full tax relief.