Employer's contribution Pension

Employer's contribution to Director's Pension (SIPP) using Company's retained earnings

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Director is a "One man Ltd Company".  Company is currently not active or employing personnel due to lack of work and he is not taking a salary just taking dividends.  Still reporting annual returns to Companies House. Director wants to know if he can make an Employer's contribution to his SIPP using the accummulated retained profits of the Company. He is not intending to claim tax relief on this contribution.  I would like to know whether this contribution is acceptable to HMRC? Has anyone have experience on this?

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paddle steamer
By DJKL
27th Feb 2017 13:01

Why would he want to do this?

Would he not be better at least considering arranging either to informally wind up company or formally wind up company, extract funds and pay CGT , hopefully at 10% ?

Or alternatively just leave alone and use company as a pension scheme paying him £5,000 p.a. until funds extinguished?

Why throw into a pension where likely, if extracted, 75% of contribution will be liable to marginal income tax and no tax relief on contribution?

Edit-I see no issue company actually paying contributions within current thresholds re the individual, just do not see the point.

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Replying to DJKL:
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By lawfra
27th Feb 2017 13:28

He is also considering MVL as an alternative but is unsure whether he can get ER at 10%. The retained earnings amount to approx. £250k and taking £5k will take a long time to extinguish the fund. He is intending to take £40k each year plus dividends to reduce the amount to a reasonable level before winding up.

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