Director's loan to cover cashflow for pension/salary

[Contreras]

So far for this company year the company has declared and paid out several dividends, paid out a single lump sum pension contribution, and no salary.

The company would now like to pay a lump sum annual salary to the director (me) and a further contribution direct to my pension. There are also a small amount of outstanding expenses owed to the director. There is enough post-tax profit to cover the salary + pension + expenses.

The company has cash deposit in a 30-day notice account which I do not want to touch, but without this there is a cashflow problem to pay the salary + pension + expenses within the company year.

Questions (and presumptions):

1) I believe the pension contribution *must* be physically paid (direct to the fund) within this company year in order to be deductible against this year's profit.

2) The expenses may be booked to the director's loan account so they are deductible from this year's profit but remain owed to the director after year end.

3) Can the lump sum annual salary also be booked to the DLA, deductible from this year's profit, declared via RTI this year, but actually paid in the following year?

4) After booking the salary + expenses to the DLA there still might not be quite enough cash to cover the desired pension contribution (it depends on client invoice payment which is due right now). Can the director (me) loan the company a few £k in order to cover the shortfall needed to pay my desired pension contribution? Even if it can legally do this, might it look dodgy from an HMRC/PAYE point of view?

Depending upon answers/corrections to the above, I'm thinking that it may be sensible to defer the pension contribution to after this company year, but still within the tax year. Sure there would be more CT to pay this year, but that is offset by less CT next year. The company accounts would also show shareholder funds slightly higher than they would have. Other than that, would there be any practical difference either for company or personal taxation, or for that matter any potential IR35 charge?

[Craig at Nixon Williams]

Everything you have said is correct!

The salary and expenses do not actually need to be physically paid in order to be accounted for - they can be owing to you at the year end and shown accordingly in the DLA. The pension contribution (in order to get tax relief) must leave the bank account in the company year, otherwise the relief will be deferred but you will still benefit later.

You can also lend the company money to make a pension contribution if this is what you want to do - or you could make a personal contribution and this may be slightly more tax efficient for you. However if you have already made personal contributions then the amount that you can contribute and get tax relief on is limited to your earned income.

Hope this helps!
Craig

[ASB]

I cant give you absolute confirmation, but I believe the answer to all of those is yes. Subject of course to the dividends not being illegal.

the subsquent transactions could potentially reduce distributeable reserves below 0. This is not necessarily going to make the previous dividends illegal but would be best avoided. I think you probably have this covered.

the loan may need to be specifically mentioned in the accounts. personally i would be inclined to undertake those transactions which didn't cause cash flow issues now and the balance when cash flow allowed. Though this does have the ct affect you describe.

[northernladuk]

Wouldn't doing this then lead to an even greater shortfall next year as you have to account for the loan as well so really not that efficient in the long run. Better to forecast better over the year and just use available resources and start afresh the year after?

[ASB]

Wouldn't doing this then lead to an even greater shortfall next year as you have to account for the loan as well so really not that efficient in the long run. Better to forecast better over the year and just use available resources and start afresh the year after?

No. It makes a difference to when. Not how much.

[Jessica@WhiteFieldTax]

As Craig has already said, all these assumptions / proposals are fine.

[Contreras]

As Craig has already said, all these assumptions / proposals are fine.

Thanks everyone for the replies.
The client coughed up for the overdue invoices plus a few that weren't due yet ('dunning' really does work ) and I now won't need to loan the co. money in order cover the pension contribution.

With some luck the cheque to the pension co. will be processed before end of month. Speculating if it doesn't clear in time - I do wonder what the position is with regard to CT. Not that it matters a big deal.

I plan to pay the expenses but leave the salary as due in the DLA. I presume that for my personal SA this will count as being received in the 2013-14 tax year regardless of when it's actually paid.