£160k pension contribution including previous three years: is this a problem?

[TheFaQQer]

This is a definate Yes to me. If you download and read the literature that is in the public domain at the likes of HL, you might agree with me.



But then again, my advice is worth you pay for it, I guess.

I'm looking at the HL literature and the pensions advisory service etc trying to see if there is a definitive that says that it doesn't have to be the same pension fund, as long as there is one in existence you can then pay into a different pension fund even if it's not been in existence.

So far, I can't see that - I'd always presumed that the pension that you're now paying into had to have been there to be able to use carry forward, but I'm happy to bow to your experience. It's not something that has ever affected me, since I've not used carry forward and if I did it would be into a pension fund that I've had for a few years now.

[TheFaQQer]

This is a definate Yes to me. If you download and read the literature that is in the public domain at the likes of HL, you might agree with me.

And there we go - found it

"There are two conditions. First, you must earn at least the amount you wish to contribute in total this tax year (unless your employer is making the contribution). Second, you must have been a member of a UK-registered pension scheme (this does not include the State Pension) in each of the tax years from which you wish to carry forward. Membership of any such pension scheme can qualify, even if you did not make contributions or were already taking benefits." (HL factsheet)

So I'll go with yes and no as well.

[jamesbrown]

It needs to be a registered scheme or qualified overseas scheme, but my understanding is (or was until now) that the employer had to be registered in those prior years to carry forward employer contributions, which is the aim of the OP....?

[Fred Bloggs]

And there we go - found it

"There are two conditions. First, you must earn at least the amount you wish to contribute in total this tax year (unless your employer is making the contribution). Second, you must have been a member of a UK-registered pension scheme (this does not include the State Pension) in each of the tax years from which you wish to carry forward. Membership of any such pension scheme can qualify, even if you did not make contributions or were already taking benefits." (HL factsheet)

So I'll go with yes and yes as well.

You mean Yes and No? (In the context of my original posting?)

[TheFaQQer]

You mean Yes and No? (In the context of my original posting?)

That's the one, yes.

And no.

[radish2008]

Stupid but very quick SIPP question

I know this is probably in the sticky but very quickly.

Can I pay into a SIPP and then reduce the amount of corp tax ? I.E I have to pay 20k CT - can I pay 20k into a SIPP and pay 0 CT on it ?

I always thought retained profits were just money kept in the business account that is yet to be taxed. From reading this it looks like the OP has 160k in the bank that he pays into a SIPP and then pays no CT on it at all ?

[SimonMac]

I know this is probably in the sticky but very quickly.

Can I pay into a SIPP and then reduce the amount of corp tax ? I.E I have to pay 20k CT - can I pay 20k into a SIPP and pay 0 CT on it ?

I always thought retained profits were just money kept in the business account that is yet to be taxed. From reading this it looks like the OP has 160k in the bank that he pays into a SIPP and then pays no CT on it at all ?

You don't pay any Corp tax on the money you put in your SIPP, if you have £100k at the end of the tax year, pay £20k into your pension, will mean profit is only £80k and the corp tax will be £16k instead of £20k

[WordIsBond]

IHMRC may see that as excessive and driven by the desire to avoid corp. tax. Pension contributions should be paid to Directors as part of their remuneration package. Clearly as things stand you are underpaid for the work you do. I would suggest commercially the work you do is worth more like £90K given the company’s turnover of around £100K per year, so it could be argued that if the salary and the pension contribution combined were at that sort of level it commercially stacks up and so at least half of the £160K payment would be fine for corporation tax relief. Whether HMRC would allow the rest of the £160K payment for corporation tax relief is debatable.

No-one will stop the contributions from going into your SIPP scheme as they are within the maximum range.

Sounds to me like the accountant is doing his job. He's not telling you that you can't make the contribution, he's telling you that there's a risk that HMRC might challenge it as excessive and not a legitimate business expense. I'd be asking him his assessment as to how significant that risk might be. I personally think it is quite low, for reasons others have stated.

If you do this, you'll create a loss in your current tax year. That needs to be carried back to reclaim last year's Corporation Tax, and any that isn't carried back can be carried forward to offset future CT. The problem with carrying back a loss is they have to send you money. That might draw more scrutiny than normal, and then they might ask, "Why is this company that only makes £100K putting £160K into a pension fund?" As others have stated, I'd argue doing this is defensible. But I'd want my accountant to flag this one up as a risk I'm taking. Sounds like he knows what he's about.

But I'll tell you how you could probably make your accountant happy. You could do £80K now, and £80K for each of the next two years. Each year you'd use that year's allowance plus the allowance from three years previously. You'd effectively wipe out your Corporation Tax liability for three years running, without having to carry back or forward any losses, and stay within the parameters he suggested. The only risk here that I can see is if they withdraw full relief on company pension contributions. I think that is unlikely to happen with the current government. If Komrade Korbyn got in, I'd expedite contributions quickly, personally, but failing that I think I'd go the slower route. It keeps the CT situation cleaner/simpler, and there's no risk that I can see.

There's one other issue that you should make sure is nailed down. Make sure you understand the rules on Tapered Allowance if your adjusted Income exceeds £150K. Adjusted Income is salary plus dividends plus pension contributions. This includes pension contributions made under a salary sacrifice scheme, but I don't know if these contributions would apply or not. I also don't know if contributions made under a carried forward allowance are included in that Adjusted Income or not. If all of these contributions are included in your Adjusted Income, you'd have a problem. I'm guessing they aren't included, but you should check.

I presume you are keeping SOME reserve in the company.

[WordIsBond]

Can I pay into a SIPP and then reduce the amount of corp tax ? I.E I have to pay 20k CT - can I pay 20k into a SIPP and pay 0 CT on it ?

I always thought retained profits were just money kept in the business account that is yet to be taxed. From reading this it looks like the OP has 160k in the bank that he pays into a SIPP and then pays no CT on it at all ?

Correct. Retained profits from prior years have already had CT paid. But if the contribution puts OP's company into a loss this year (which it appears it would), he can carry it back for one year to apply to last year's profits and reclaim CT paid last year. And if he still has excess loss after wiping out last year's profits, he can carry the remainder forward to next year and apply it against next year's profits, reducing his CT liability.

[MB2]

I did this a few years ago - similar situation re salary/dividends. Used an old pension scheme as justification and although the IFA said I may get questioned it went through fine.

I was told if asked why I did it to say concerns over the election removing pension benefits. If your corp tax is less than 160 k this year then you may want to phase the contributions to offset the CT liability in multiple years ?