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Owner/direct company pension contribution

Director pension contribution where nil income for the year but has reserves brought forward

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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

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By johnt27
06th Dec 2017 16:25

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?

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Replying to johnt27:
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By Lisa02
06th Dec 2017 16:28

John, thank you for the reply. You are right I was thinking of carrying the loss back and claim a bit of the CT paid last year on the loss equivalent amount, hence the worry of entering in ye 30Nov17 accounts.

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Replying to Lisa02:
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By Lisa02
06th Dec 2017 16:32

To be honest, he set up the pension scheme last year 25 November 2016. The pension provider was meant to take the amount £8k out by 30Nov16 but they did on 01Dec16. However, I included the payment as ye30Nov16 expense but entered pension accrual of £8k in BS. Reason I wanted to reduce his profit so he pays less tax. This year again, the payment was meant to come out by 30Nov17 but has come out a few later in Dec17.

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By Lisa02
06th Dec 2017 16:33

Deleted

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By Martin B
06th Dec 2017 16:36

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.

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Replying to Martin B:
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By David Heaton
06th Dec 2017 17:06

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.

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By Lisa02
06th Dec 2017 17:09

I will be safe and enter into next year i.e. when paid, especially as there is a loss. Thank you for the reply all, much appreciated. kind regards

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By Portia Nina Levin
06th Dec 2017 17:16

Or you could prepare the 30 November accounts to 5 December, as permitted by company law.

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By Lisa02
06th Dec 2017 17:22

Yes, I didn't think of this.

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By Lisa02
06th Dec 2017 17:27

Sorry, a question I should know the reply of -how frequently can i change the accounting date. I.e. next year can I change back to 30 Nov18 or extend to 31Dec18

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By Portia Nina Levin
06th Dec 2017 17:34

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.

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By Lisa02
06th Dec 2017 17:39

Thank you Nina -So i understand, i will keep the financial accounts and tax return reference date 1/12/16 to 30/11/17, but in the note state that accounts are prepared to 7th December 2017. Obviously, next year to prepare from 8th Dec17 to 30Nov18 but again keeping the ARD to 1/12/17 to 30/11/18. Sorry, if not getting it right

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