Hi all,
Lets say I have retained profit of £500k in limited company and paid approx £30k Corporation tax for past 10 years.
I havent paid into any pension.
This trading year I only make £40k retained profit.
Can i still use the previous years retained profit for the purpose of the limited company £160k pension (Using the previous 3 years carry forward)?
My accountant advising the retained profit for pension payments must come from the current trading year (Although salary and pensions can be paid from retained profit)
Any pension payment beyond this years trading retained profit, putting the company into a loss, would result in a fine.
Any accountants know the absolute decree on this?
I am looking to close out limited company before moving to a salary position so want to use all my retained profit for pension contribution but not enough trading profits for this company year.
Seen this on the internet but my accountant (and a 2nd accountant i also asked said this inst true)
Pension contributions are normally allowable deductions for corporation tax purposes. Since the deductions form part of the company expenses, any trading loss can get relief under the trading loss rules for the company.
Many directors would restrict making employer pension contributions when the company is making losses as they see this as adding to the losses. But if the loss can be offset against profits of the preceding year or against future profits then making an employer pension contribution could reduce the amount of tax the company needs to pay.
If a company has paid corporation tax in the preceding period or will be paying corporation tax in future periods, tax relief will be given for pension contributions made wholly and exclusively for the purpose of the trade paid before the end of the accounting period.
Example
A company anticipates profits of £20,000 for year ending 31 December 2010. The company had profits of £500,000 for year ending 31 December 2009. The annual pension contributions to directors and employees are £100,000.
If the company pays the pension contributions then it will have a trading loss of £80,000 for the year ended 31 December 2010. This loss can be offset against the previous year's profits gaining a corporation tax repayment of £23,800 (£80,000 taxed at 29.75%) and no tax due for the year ending 31 December 2010 saving the company £4,200 in 2010 (£20,000 taxed at 21%).
The overall saving for the company would be £28,000.
Lets say I have retained profit of £500k in limited company and paid approx £30k Corporation tax for past 10 years.
I havent paid into any pension.
This trading year I only make £40k retained profit.
Can i still use the previous years retained profit for the purpose of the limited company £160k pension (Using the previous 3 years carry forward)?
My accountant advising the retained profit for pension payments must come from the current trading year (Although salary and pensions can be paid from retained profit)
Any pension payment beyond this years trading retained profit, putting the company into a loss, would result in a fine.
Any accountants know the absolute decree on this?
I am looking to close out limited company before moving to a salary position so want to use all my retained profit for pension contribution but not enough trading profits for this company year.
Seen this on the internet but my accountant (and a 2nd accountant i also asked said this inst true)
Pension contributions are normally allowable deductions for corporation tax purposes. Since the deductions form part of the company expenses, any trading loss can get relief under the trading loss rules for the company.
Many directors would restrict making employer pension contributions when the company is making losses as they see this as adding to the losses. But if the loss can be offset against profits of the preceding year or against future profits then making an employer pension contribution could reduce the amount of tax the company needs to pay.
If a company has paid corporation tax in the preceding period or will be paying corporation tax in future periods, tax relief will be given for pension contributions made wholly and exclusively for the purpose of the trade paid before the end of the accounting period.
Example
A company anticipates profits of £20,000 for year ending 31 December 2010. The company had profits of £500,000 for year ending 31 December 2009. The annual pension contributions to directors and employees are £100,000.
If the company pays the pension contributions then it will have a trading loss of £80,000 for the year ended 31 December 2010. This loss can be offset against the previous year's profits gaining a corporation tax repayment of £23,800 (£80,000 taxed at 29.75%) and no tax due for the year ending 31 December 2010 saving the company £4,200 in 2010 (£20,000 taxed at 21%).
The overall saving for the company would be £28,000.
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