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Investment business - management expenses FRS 102

Investment business - management expenses FRS 102

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Hi,

I wonder if anyone can point me in the right direction; I have a new client, a small limited company being run as an investment business. The company invests in publicly traded stocks. When the company realises any gains it pays the gains into the director's personal pension scheme as his payment for managing the company - management expenses. These we expect will add up to circa £10k a year.

The pension contributions wipe out any taxable profits/gains each year so there is never a Corporation tax liability. I understand how to prepare the CT600 Corporation tax return as I have dealt with management expenses and investment businesses like this before but with regards to the accounts myself and a colleague are having a bit of a debate:

Do we show the pension contribution in the accounts under expenses - pension OR do we show the "P/L on disposal of investments" net of the pension contribution i.e. zero as the pension contribution wipes out the whole profit on disposal. 

The answer is probably very simple and we are overthinking it but we can not find confirmation anywhere. 

Any opinions or points in the right direction would be extremely helpful.

As always, thank you for taking the time to read and comment. 

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By paul.benny
28th Nov 2020 08:22

You are over thinking it.

Profit on investments is the difference between buying and selling, net of charges.
The pension contribution is effectively a success fee for management of investments.

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By Wanderer
28th Nov 2020 10:10

Archie-Bald wrote:

Do we show the pension contribution in the accounts under expenses - pension OR do we show the "P/L on disposal of investments" net of the pension contribution i.e. zero as the pension contribution wipes out the whole profit on disposal. 

The former.
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By Anonymous.
28th Nov 2020 13:17

Is this relevant to the tax treatment of the pension contributions?

https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm08170

"In L G Berry Investments Ltd v Attwooll 41TC547 the company argued that the directors’ fees, which were substantially the excess of its gross income over other expenses, were an expense of management. Plowman J rejected the company’s argument."

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