Help please: A single owner/director of a ltd company wants to make a director company pension contribution of £8,000 for the financial year. However, in the financial year there is no company income but it has reserves of £25,000 brought forward from last year. This pension contribution, coupled with a few other small expenses will result in the company making a loss. However, after these expenses company still has further reserves left carried forward into next year. Question is can the company make the pension contribution.
He made a similar company pension contribution last year too, but last year company had income and it paid corporation tax on profit, plus had reserves of £25,000 carried forward at the end. However, the director has temporarily gone into full time employment but has kept the company open in case he decides to go contracting again soon in future.
Another point is that the pension provider has taken the money out on 5Dec17, the financial year end for the company was 30Nov17. Can this pension deduction go into 30Nov17 year end.
Would appreciate a reply
Replies (12)
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No issue with the payment although you may have to work your timings out. Key issue is whether or not it is wholly/exclusively for business purposes for CT, assuming you were thinking of doing a loss carryback?
Not sure why you worry about the positive reserves unless this is being dressed up as a dividend?
I stand corrected but thaught that for pension contributions you get tax relief in the accounting period when paid.
So in this instant it is in the next a/c period.
Martin B, you are correct. There's no tax relief on an accruals basis - you only get a deduction for pension contributions in the year in which the contribution is paid (and then only if it meets the other rules for deductible expenses). There is of course a deferred tax adjustment if the contribution is tax-deductible but relief falls into the later period than the AP in which it is accrued.
Or you could prepare the 30 November accounts to 5 December, as permitted by company law.
You don't need to change the accounting reference date (ARD). You can prepare the accounts to a date 7 days either side of the ARD (without changing it) at will.
If you feel the need to, you can change the ARD so as to shorten the accounting period as often as you want, but when you change the ARD to extend it, you can't make an extending ARD change again for 5 years.