I'm just finishing off the accounts for a one man limited company, year end March 2014. His profit is higher than expected so he would like to increase his pension contributions (or rather his company's contribution) for 2013/14 by £2k. Is he ok to do this now even though the payments weren't physically paid in 2013/14. I have told him to check with his pension company but would be interested to know.
thanks
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It's complicated!
But this may shed some light:
https://www.accountingweb.co.uk/anyanswers/question/pension-payments-can...
Sole trader
But this may shed some light:https://www.accountingweb.co.uk/anyanswers/question/pension-payments-can...
This relates to a sole trader. The question here is about a company, and I don't agree that the position is complicated at all. The position couldn't be clearer.
No you can't accrue for the payment. Or rather if you do, you will have to add it back in the CT comp. Your client has left it too late. Suggest you make a note to contact him on or very soon after 1 February 2015 to see if he wants you to help him with any pre year end tax planning.
The premium...
... doesn't need to be paid in the "accounting period", it just needs to be paid in the "period of accounts". All you need to do is extend the period of accounts.
12 months
... doesn't need to be paid in the "accounting period", it just needs to be paid in the "period of accounts". All you need to do is extend the period of accounts.
How that's going to work, when CT returns can't be for a period exceeding 12 months?
Time apportionment
How that's going to work, when CT returns can't be for a period exceeding 12 months?
What do you usually do when a period of accounts exceeds 12 months? You apportion the results to the two corporation tax accounting periods.
Thanks
What do you usually do when a period of accounts exceeds 12 months? You apportion the results to the two corporation tax accounting periods.
Thanks. sometimes you ignore the basic things!!
I'd assumed...
... that a "0" had been omitted; otherwise I wasn't sure why the OP was asking the question. :)
well look
... that a "0" had been omitted; otherwise I wasn't sure why the OP was asking the question. :)
Well, £2k here, £2k there and before you know it you're talking petty cash.
Yes that's what I meant. But, being pedantic, even to accrue it solely for accounting purposes you need to be sure that there was a constructive liability at the year end for the company to pay it.
Simple
Given the information supplied, the answer is a simple 'No'.
The ifs, buts and maybes might apply to other people in other circumstances, but not this one.
But Basil
If the period of accounts is 50% longer, then the client might be inclined to increase the amount of contribution by 50%. Sorry if I've been a little tardy with my calculations. :)
Why would you extend?
If the profits of the company are the same in 2014-15 as in 2013-14, then extending the accounting period has the benefit of accelerating tax relief on pension contributions, but the disadvantage of accelerating the payment of tax on the 2014-15 profits.
On this basis I would say don't even think about it. Changing accounting dates can be useful in the right circumstances, but not in these are not the right circumstances.
Looss and Personal contribution
Rhetorical, but don't forget that if the company makes a loss or is near to making a loss in the following period and that can be exacerbated by a pension contribution that loss can be carried back. In the good old days I did that with a SSAS and got £0.5m carried back.
Re the title
How about paying a bonus and the director can make a personal contribution - normally basic rate relief at source and any higher rate through the SA. Depending on his tax and NI position that might work
Some interesting comments here...
The basic answer is of course that relief for a pension contribution can only be given if the contribution is paid during the accounting peiod in question - a further interesting point (and indeed pitfall) is that if you are paying by cheque a contractual contribution, usually the agreed percentage of income is satisfied provided that the cheque is posted by the last day. However a voluntary contribution, such as the £2K mooted here, the cheque will have to have cleared by the last day of the AP. A voluntary contribution is gratuitous and, in law, to make a gratuitous transfer legally binding everything necessary to complete the transaction must have been done.
Basil said "Some taxpayers, and indeed some accountants, are of the mistaken view that one can accrue Directors' Salaries in Accounts, as long as they are paid within 9 months of the accounting year-end - this is not correct [ as above there must have been an obligation to pay]." If an accrual is made in company accounts for a director this will create a PAYE obligation at the date that the entry is made in the accounts and so the sum may be treated as made within the AP and CT relief will be available - this is because of special rules for determining directors remuneration under ITEPA and the NIC regulations. If a general provision, as we used to call it, is made, which is not legally binding or related to a particular director then it will not create a PAYE obligation but will not create a right to a CT deduction either, unless paid within 9 months of the AP to which it relates. Under the old PAYE rules this was a fairly abstract point but of course under RTI it represents a real trap for the unwary and we can look forward to investigations looking at this sort of compliance issue in future. But of course as Basil says for a pension contribution even that is not enough if you want the relief in the right period.
Maximising relief for pension contributions is always a problem, especially for self-employed, because of the inability to carry contributions backwards or forwards - I was interested to see the suggestion Basil separately made about having a 30 September year end because you can know what a client's income is during the year in question. Since the Current Year Basis came in in the 1990s accountants in general have been frightened (it seems) of having a year end other that 31 March/5 April for fear of overlap relief. In fact from a planning point of view the advantage (if you take it) of a 30 April year end outweighs, in my opinion, any perceived disadvantage from the creation of overlap relief when the profile of income assessable year by year is considered unless the profits of the first period are very significantly greater than the profit in later years - most clients expect income year on year to rise (even if it doesn't) so anticipate, with a 30 April year end assessable profits less that those currently being realised - and of course if there proves not to be an advantage the accounting date can be subsequently changed and the overlap deducted at that point. With a 31 March year end you have no room to manoeuvre whatsoever.