How to account for company payment, and tax treatment

How to account for company payment, and tax...

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Client company set up a SIPP for sole director/shareholder.  Co.made pension contribution and SIPP borrowed balance to buy offices at valuation. 

Seller would not sell at the "fair valuation" so the company paid an extra £40k to seller to enable the sale to go through.

The questions are:

1. How to account for the payment made by the company, as it has no asset (the property is in the SIPP) and it does appear to be capital rather then revenue in nature. Our best idea so far is to treat it as some sort of pre-paid rent as the company will be paying less rent for the property after the purchase (the company occupies the office at present). We don't think any BIK issues arise as the SIPP has purchased the property at full valuation and the £40 has not gone into the SIPP.  

2. How do we treat the payment for tax purposes?

Any creative ideas would be much appreciated.

Replies (8)

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By johngroganjga
23rd Oct 2013 08:41

It's a pension contribution which should qualify for corporation tax relief.

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Replying to ireallyshouldknowthisbut:
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By mirrored
23rd Oct 2013 08:48

Pension contribution?

johngroganjga wrote:

It's a pension contribution which should qualify for corporation tax relief.

Thanks for the reply but I'm not sure how it can be a pension contribution. Perhaps my initial post was not clear.

The company paid a contribution to the SIPP to enable the SIPP to borrow 50% on top to buy the property at full value (per the surveyors valuation). 

But in order to get the seller to sell the property at all, the company had to make an additional payment directly to the seller. This extra payment did not go anywhere near the SIPP.

Does that clarify the issue a bit better?

Thanks

 

 

 

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By andrew1211
23rd Oct 2013 08:56

I assume....

...this is not some sort of backhander to the seller???

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Replying to Montrose:
By johngroganjga
23rd Oct 2013 09:06

Good point

andrew1211 wrote:

...this is not some sort of backhander to the seller???

I am pre-supposing that it is properly documented as part of the property purchase consideration - which means that it will appear on the solicitor's completion statement.

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By johngroganjga
23rd Oct 2013 08:59

Well it's a payment on behalf of the SIPP.  It's either a pension contribution or a loan to the SIPP.  I can't see that it can be anything else.  Have you asked the trustees of the SIPP what it is?

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By mirrored
23rd Oct 2013 09:28

All above board

There is no "backhander" involved!  The sale price was £300,000 agreed with the seller and the valuation was £260,000 (Valuation of commercial property as very conservative at the moment)  

The property is uniquely very valuable to the company for its trade and is worth paying the asking price for, according to the directors, but the surveyors could not value it as highly on the open market.

The SIPP paid the full valuation of £260,000 (they are not allowed to pay more) and the company paid the balance of the purchase price (£40,000).

It was an authentic arms-length transaction.

 

Hope that helps

 

 

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By johngroganjga
23rd Oct 2013 09:30

Then as I said it's either a loan or a contribution and the trustees will be able to tell you which - and show you a copy of the loan agreement if it's a loan.

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By andrew1211
23rd Oct 2013 09:32

So....

...likely that the SIPP has a £300k asset with a £40k loan due to the company. The loan could then be cleared via another company pension contribution.

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