I've picked up the idea (not sure where from) that the Rev have a new test for allowability of pension contributions made by company.
Large contributions (relative to salary) may be denied tax relief on the grounds they are "non commercial."
Have I got the wrong end of the stick here? I've looked on the hmrc website and can't find anything (nothing new there, though), although BIM46000 does refer to new guidance being issued soon.
Can anyone point me in the right direction in terms of references or otherwise put me right, please?
Adam Reeves
Replies (6)
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Try here:
The guidance issued is at:
http://www.hmrc.gov.uk/practitioners/registered-pensions.htm
The issue is also discussed in a number of threads on Any Answers (one as recent as yesterday...).
Pension contribution summary
The following is a link to a general summary of the position on the tax deduction of employer contributions to an approved pension arrangment.
http://www.chiene.co.uk/pdf/emppension.pdf
As far as I am concerned..
HMRC guidance is a little vague on the matter. It is also, as you would expect, skewed in their favour.
In the meantime, I have been advising my clients to document an agreement to salary sacrifice. i.e. Directors salaries for the forthcoming year to be £xx,xxx with £x,xxx paid in cash and £xx,xxx by way of a pension contribution.
Does anyone else have any advice?
Remuneration package
HMRC may disallow any expense of a business where its purpose is not wholly and exclusively for the purpose of the trade - Section 34(1)(a) Income Tax (Trading & Other Income) Act 2005. Therefore if a company pays a pension premium into a controlling director's pension purely for the purpose of topping up the pension it is not for the pupose of the trade. The latest guidance in this respect is in the update to HMRC's business income manual (BIM) which is, at present, only available in pdf format at the link advised below (registered-pensions). At paragraph BIM46025 it advises that it is the amount of the whole remuneration package that is to be considered when deciding if it is excessive for the duties carried out by the director or employee. In the case of a company with only one director and no employees it would be unlikely for relief to be denied for any remuneration package up to the amount of post tax profit of the company, as this is effectively generated by the enterprise of the director. I feel that HMRC have now taken this view, as opposed to that issued previously, due to the acknowledgement that a director could, quite ligitimately, enter into a contract with the company for a certain amount of salary and then sacrifice this for a pension premium.
Pedants' Corner strikes again
I am in total agreement with Mark's comments (in particular his view that a one-man company's director may legitimately and deductibly draw total remuneration up to 100% of the company's profitability), with one minor (but, to the pedants among us, important) quibble:
Section 34(1) of ITTOIA has no relevance whatsoever to the computation of a limited company's tax liability. ICTA 1988 s.74(1) still applies for those purposes.