Pension Contribution by a Company

Pension Contribution by a Company

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As with other entities, a Ltd Co with employees must now make provision for pension for its employees. Where however a Ltd Co has a sole director/sole shareholder not drawing any salary, can it be deemed that pension provision is still required, is mandatory?

Client is contemplating making a pension contribution to a sipp, which would reduce profit - but can this be  done retrospectively many months after year end as a post balance sheet event/mistake that needs remedying?   If its possible,it would reduce taxable profit.

Whether possible or not, is it better for the company to make aThird Party Contribution, or would it require setting director up as employee and gettingHMRC approval/clearance?

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By stephenkendrew
18th Dec 2015 17:43

no, no, yes

1. No - there is no requirement for a sole director (assuming there is no contract of employment) to have a workplace pension.

2. No - tax relief on pension contributions is only obtained in the period in which they are paid.

3. At the moment it probably makes no difference. From April 2016 it will be advantageous for the company to make the pension payment rather than the director out of money that is subject to dividend tax.

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By beancountess
19th Dec 2015 11:20

Pension - Tax deductibility

 

And if turnover is minimal yet a large contribution of say 35k is made, which would lead to a correspondingly large loss, would that prove acceptable?

I realise after April 16, company contribution will be advantageous but while an individual making a large contribution is rarely concerning, if a company does when it is not perfoming well, would it not be concerning?

There would be a legitimate rationale here - to 'recoup' or 'make up' for past periods when no contrbutions were made, but it simply would  coincide with a bad year or two.

 

 

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Replying to Sally26:
By cfield
19th Dec 2015 16:01

Must be wholly and exclusively for the trade

The only requirement for the company to obtain a tax deduction is that an expense must be wholly and exclusively for the trade. So long as the contribution does not exceed profits for the year, it is unlikely that HMRC would deny a tax deduction, particularly if overall remuneration was at a commercial rate.

Contractors at risk of IR35 might also be well advised to start making large company contributions.

 

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