Questions on using carry forward option to pay my pension using company funds

[ian2013]

Hi,

I have been contracting via my limited company for years, but had to take up an 'inside IR35' contract from January after 5 months out of contract. I am thinking of shutting down my company which has quite a large amount of cash so I am considering using the cash to pay into a pension. I have the following questions:

1. Do I have 2 years unused allowance or 3 years allowance?
I understand that I can use the unused allowance for the last three years to pay for a pension (given I never used my company's fund to pay for my pension), but I don't know from which date to count the last three years: is it the tax year (which ends April 5, 2020 for the current tax year) or my company financial year (which started Sept 1, 2019 and will end August 31, 2020)?

The answer to the question will determine whether I have two years unused allowance or three years allowance. I have been out of contract since the start of my company's current financial year (Sept 1, 2019), so that my company's income for the current company financial year is zero. Someone told me that pension can only be paid from the company's income for that financial year. So if I use the company financial year (Sept 1, 2019) as the base for 3 years, given the income for the current year is zero, I can only use the previous two years' unused allowance, so a maximum of £40000*2=£80000. However, if the tax year is used as a base to count the 3 years, then I will have 3 years unused allowance as from April 6 2019 to August 31 2019 (when my last company year ended) my company had income.
Which date is the correct one?

2. What's the deadline for me to use the 3 year unused allowance (i.e. by paying the money into the pension scheme)? Is it the end of current tax year (April 5, 2020) or (August 31, 2020)?

3. If I use the previous unused allowance, can my company get any corporation tax rebate for the years?

4. I have been in a pension scheme from Aberdeen which took over my pension from a company which I used to work as a permie. Don't know if that is a properly registered scheme. How do I find out?

Any help will be greatly appreciated.

Ian

[Paralytic]

Assuming you've had a pension for the previous 3 years, you can carry forward those 3 years worth of £40K. The thresholds are based around the tax year.

So, before April 6 this year, you could pay £160K into your pension, and another £40K after April 6. If you don't pay any in this tax year, and wait till April 6, you'll be able to pay £160K into your pension.

Payment into the pension will reduce the Corporation Tax for the year in which is is paid and. You *may* be able to carry any CT losses back/forward, and even potentially get CT rebates, but the rules are not as clear-cut, so check with your accountant

Read this also - has some good responses: https://www.contractoruk.com/forums/...loss-year.html

The above assumes you'd only want to use the £40K allowance for each year - there is actually no limit, but you get a major tax hit if you do pay in more than your cumulative allowance.

[ian2013]

Many thanks Paralytic for the reply.

Why will I still be able to pay £160K after April 6? It will be a new tax year and my company will have no income in that tax year (despite have cash from previous year's income), I thought only the income for the relevant year can be used to pay for pension. Is this understanding incorrect?

Ian

Assuming you've had a pension for the previous 3 years, you can carry forward those 3 years worth of £40K. The thresholds are based around the tax year.

So, before April 6 this year, you could pay £160K into your pension, and another £40K after April 6. If you don't pay any in this tax year, and wait till April 6, you'll be able to pay £160K into your pension.

Payment into the pension will reduce the Corporation Tax for the year in which is is paid and. You *may* be able to carry any CT losses back/forward, and even potentially get CT rebates, but the rules are not as clear-cut, so check with your accountant

Read this also - has some good responses: https://www.contractoruk.com/forums/...loss-year.html

The above assumes you'd only want to use the £40K allowance for each year - there is actually no limit, but you get a major tax hit if you do pay in more than your cumulative allowance.

[GhostofTarbera]

Many thanks Paralytic for the reply.

Why will I still be able to pay £160K after April 6? It will be a new tax year and my company will have no income in that tax year (despite have cash from previous year's income), I thought only the income for the relevant year can be used to pay for pension. Is this understanding incorrect?

Ian

Just burn your money

A £400K pension pot last week is now worth £250K

Your £160K will probably lose £50K before the markets settle

Are you mad? - seriously question


Sent from my iPhone using Contractor UK Forum

[northernladuk]

This might help but with this amount of money flying around you really need to get your accountant to help. They won't help with GoT's point though as that would be financial advice.

https://www.contractoruk.com/forums/...oss-issue.html

[northernladuk]

Just burn your money

A £400K pension pot last week is now worth £250K

Your £160K will probably lose £50K before the markets settle

Are you mad? - seriously question


Sent from my iPhone using Contractor UK Forum

If he gets it right and gets it in as the markets rebound he could be making double digit gains in a very short space of time... I say while sweating and crossing everything I have right now...

[Paralytic]

Many thanks Paralytic for the reply.

Why will I still be able to pay £160K after April 6? It will be a new tax year and my company will have no income in that tax year (despite have cash from previous year's income), I thought only the income for the relevant year can be used to pay for pension. Is this understanding incorrect?

Ian

The company can make pension contributions from retained funds (previous years profits). Again, however, speak to your accountant, as different ones will have different ideas as to what extent you can effectively clear out your company's bank account, and potentially claiming back CT, at a time where the company is not really actively trading.