Reply to: Pensions and accountants - am I going daft?

[the_rangdo]

I'm going to see out this gig first (Dec) then see what happens after that.

Long way of saying, for the moment, CBA

[Alan @ BroomeAffinity]

Time to change accountants perhaps? Know of any good, helpful ones...?

I was thinking that but didn't say it for fear of being accused of spamming!

[glashIFA@Paramount]

The HMRC business income manual http://www.hmrc.gov.uk/manuals/bimmanual/BIM46035.htm basically says that all pension contributions are allowable unless there is a "non-trade purpose". It also says that the "whole" remuneration package needs to be considered - i.e. wages plus pensions and benefits. There is absolutely no indication of any link at all to the actual wages level paid. So if a director would have a comparable "package" of say £60,000 in the open market, then a wage of £5k and pension contributions of £55k are perfectly acceptable. This was confirmed on a course I went on given by a well known and respected tax author/consultant who went further and said that the maximum "remuneration" for a director/shareholder was probably as high as the profits made by the company that year - so if the company earned £100k in profits, then a salary of £5k and pension contributions of £95k was acceptable even if the open market worth of the director was only £60k. All this, of course, assumes that it is a sole shareholder/director - the grounds being that without him/her the company would have made nothing at all, so he/she must be "worth" the amount of profit generated. Of course, none of this automatically applies to spouses who are not "fee earners" - they will be dealt with under the long established existing rules of only being able to have a "package" worth their open market value so if a spouse is an administrator and could realistically earn £20k, then their "package" would be limited accordingly, i.e. £5k salary and £15k pension - any excess being for "non trade purposes".

That's it. You can contribute whatever you want - the issue is about what qualifies for tax relief. Depends whether its an employee or an employer contribution. An employee is limited to 100% of salary or £3,600 whichever is greater per annum (dividends don't count as salary). An employer can contribute 100% of remuneration as above, and pension contribs made by an employer are remuneration. Of course, if the contribution is being made in the year you expect to take benefits then there is no limit on the level of allowable contribution. the current annual allowance for the 08/09 tax year is £235,000. If you're on a low salary and high divis then salary sacrifice isn't worth the bother. As for EPPs - they come under occupational scheme legislation, reporting to HMRC etc. and the main reason for EPPs in the past has always been for high levels of contribs pre A-day. Now that the contribution limit has been increased substantially which erases one of the main reasons for EPPs in the past, it's highly likely that we will see the demisse of EPPs and providers will cease to provide them. However, if you have an existing EPP you still need to take advice regarding the tax free cash limit which may well be higher than the current regime of 25% of fund.

[malvolio]

That's a more useful response than the one I just receibved from my accountant

Time to change accountants perhaps? Know of any good, helpful ones...?

[the_rangdo]

That's a more useful response than the one I just receibved from my accountant

"Am I able to pass you over to our recommended financial advisor, ********, as I am unable to advise on this."

So it seems they think I'm still asking how to invest the money

[philip@wellwoodhoyle]

The HMRC business income manual http://www.hmrc.gov.uk/manuals/bimmanual/BIM46035.htm basically says that all pension contributions are allowable unless there is a "non-trade purpose". It also says that the "whole" remuneration package needs to be considered - i.e. wages plus pensions and benefits. There is absolutely no indication of any link at all to the actual wages level paid. So if a director would have a comparable "package" of say £60,000 in the open market, then a wage of £5k and pension contributions of £55k are perfectly acceptable. This was confirmed on a course I went on given by a well known and respected tax author/consultant who went further and said that the maximum "remuneration" for a director/shareholder was probably as high as the profits made by the company that year - so if the company earned £100k in profits, then a salary of £5k and pension contributions of £95k was acceptable even if the open market worth of the director was only £60k. All this, of course, assumes that it is a sole shareholder/director - the grounds being that without him/her the company would have made nothing at all, so he/she must be "worth" the amount of profit generated. Of course, none of this automatically applies to spouses who are not "fee earners" - they will be dealt with under the long established existing rules of only being able to have a "package" worth their open market value so if a spouse is an administrator and could realistically earn £20k, then their "package" would be limited accordingly, i.e. £5k salary and £15k pension - any excess being for "non trade purposes".

[the_rangdo]

Another couple of points which may be worth considering:-

Employer Contributions.

Effectively an employer can make any contributions they feel like. The question is really whether the IR will allow the corporation tax deduction. There seems to be a point view that 100% of salary is certainly OK. Beyond that the revenue may like to argue they are not wholly for the purpose of trade (differing accountants have different views and there are no hard and fast rules really apparent yet). This is not a decision for your local office as I recall. This is something that has to be referred further up the HMRC food chain.

And that's the point I wanted them to clarify. IANAA so at every stage I've asked them what the correct thing to do is to ensure I don't incur HMRC wrath. I've read that before (on this forum) but just wanted a second opinion.

It's no different them telling me, as a guide, I could claim £5 per week home use without fear of investigation.

[ASB]

Another email to them this morning, giving them the benefit of the doubt I've tried to explain it again

Another couple of points which may be worth considering:-

Employer Contributions.

Effectively an employer can make any contributions they feel like. The question is really whether the IR will allow the corporation tax deduction. There seems to be a point view that 100% of salary is certainly OK. Beyond that the revenue may like to argue they are not wholly for the purpose of trade (differing accountants have different views and there are no hard and fast rules really apparent yet). This is not a decision for your local office as I recall. This is something that has to be referred further up the HMRC food chain.

Personal contributions.

Much less of any potential problem. You can effectively pay what you want. The question that arises from here is the source of the income you are using to make the contributions with.

If it is dividend income then that has not suffered NI before receipt, thus overall the amount seen by the pension provider becomes broadly equal, however obviously the overall effects of compounding the difference oven a large number of years can be significant.

So, ultimately, if you are IR35 caught then company pension contributions are a good way of reducing your lifetime taxation burden - provided you are prepared to tie up the money for ages.

If you are NOT IR35 caught and are paying dividends then overall it may make little difference depending upon your overall circumstances.

[the_rangdo]

Another email to them this morning, giving them the benefit of the doubt I've tried to explain it again

[THEPUMA]

This is absolutely tax advice that only your accountant should be giving. Your IFA should refer you back to your accountant.

Your accountant will not be able to give you a black and white answer as ASB rightly says but should be able to give you some guidance as to what would be safe, unsafe and in the grey area based upon fundamental tax principles and HMRC guidance.

[the_rangdo]

Regards the search and the answer I provided my intent was to give you adequate terms to try and dig up things which may not be entirely intuitive.

Cheers for that, you did actually save me a bit of further digging so that worked

[the_rangdo]

And I would imagine that the IFA would probably call me to confirm everything's ok with the contributions.

Like most things financial - there's no black and white only lots of grey.

So £11k p.a. is ~£900 p.m. - I decide to pay in £3000 p.m., my accountant won't say if that's generally o.k. or not but I can tell an IFA who would then likely confirm it with my accountant. Seems an unnecessary extra step.

In general the info ASB has given in his post would be basically what I'd say.

Which is pretty much all I wanted my acct to say and is more useful to me than what I got, which was.....

Again we would not be able to advise on this and would advise you asked your provider or a financial adviser regarding this.

Whilst we can't advise to your specific circumstances I have found some relevant information at

http://www.thepensionservice.gov.uk/...tre/pm/pm2.asp

The booklet PM2 refers to SERPS from page 37 and pension forecast information from page 55.

Details of general enquiry information is also shown on page 58.

All seems a bit harder than necessary. I didn't want to get investment advice from them, I just wanted to ensure from a company and tax perspective I wasn't doing anything fundamentally wrong.

One possible reason why is down to them not being able to offer impartial advice or be able to obtain any commission from the advice they could offer you

As above, I didn't ask anything from them about where to put the money, just will I incur any tax problems if I pay this level of money?

[ASB]

Being pedantic, I wasn't actually asking the forum to answer my pension questions - I know how to search

I'm asking if I'm being unreasonable expecting an accountant to give me advice regarding the financial matters of my LtdCo and it's employees/directors.

But, you've given me more information for free than someone I'm paying for - that can't be right, can it (and don't tell me to search for the answer to that )

Fair enough. The actual answer to the actual question would in my view be "yes, personally I think he should be able to give you more".

Regards the search and the answer I provided my intent was to give you adequate terms to try and dig up things which may not be entirely intuitive.

[pmeswani]

Thanks, that sort of answer would have covered it, I told them I was only asking for a guideline not an absolute.

Given they advised on the amount of salary to take in the first place, and they've recommended minimum values for e.g. home working amounts below which Hector wouldn't normally bother looking at, just a ball-park "Don't pay in more than x times your salary as an approx guide" would have been o.k. and was all I wanted.

My accountant just says speak to a pension advisor, will that pension advisor bother about local tax office guidance? I feel it's more likely they'll say speak to your accountant.

Seems to me I'm left to investigate stuff on the www

One possible reason why is down to them not being able to offer impartial advice or be able to obtain any commission from the advice they could offer you.

When I started contracting, I went through Parasol Umbrella. I was encouraged to use Parasol's own branded EPP (by their own IFA arm), which I disagreed with as I would not be in control of the pension investments. They insisted that the best way was to go into Parasol's EPP as I could contribute more into the scheme via employer & employee contributions (in terms of tax relief), etc. I did try and tell them that this can also be achieved in a SIPP... but they kindly ignore that. I wasn't impressed with their independance. So it does pay to speak to someone that is independant to your accountant.

[Alan @ BroomeAffinity]

As an accountant myself, I'd be inclined to agree that we are not regulated or insured to provide this advice so it'd be difficult to do so but as it is more information rather than advice we'd be providing then I don't think we'd be breaking any rules. In general the info ASB has given in his post would be basically what I'd say.

And I would imagine that the IFA would probably call me to confirm everything's ok with the contributions.

Like most things financial - there's no black and white only lots of grey.