Company Pension Contributions - Not 100% Guaranteed to be tax deductible?

[Gumbo Robot]

I've been making contributions through my Ltd since 2008 after taking advice on tax efficient ways of using the money in my Ltd.

Just made last year's contribution on March 31st & got a letter back from the firm who I've been with (Wealth Matters) stating the following:

For deductibility to be allowed the contribution has to be made wholly and exclusively for the benefit of the trade. This condition is invariably satisfied if the contribution is made on behalf of an individual who is solely an employee of the firm. With the owner, HMRC may take the view that the contribution has some personal interest. Fortunately, there is HMRC guidance on how it is to interpret the rule in the Business Income Manual at BIM46035 and BIM 47105. These guidelines tend to indicate that where the employee is a controlling director, HMRC are likely to allow the contribution to be tax deductible.

It is up to the local inspector to decide whether to refer upwards in HMRC but it is hoped that the pension contribution will be deductible. However, no guarantees can be given.

I always thought these contributions were 100% tax deductible. No ifs no buts - so what has changed? Any cause for concern?

[TheCyclingProgrammer]

Nothing has changed. All employee/director remuneration, whether it be salary, benefits or pension contributions - like any other business expense - has to be "wholly and exclusively" for business purposes in order for it to be an allowable deduction for YourCo's company CT bill. This is the general rule, and certain expenses might have additional rules.

In practice, it is normally accepted that employee/director remuneration is is wholly and exclusively for business however there are edge cases. A common one is where a spouse is paid a salary but does nothing for the business or is paid an excessive salary for what the contribute - HMRC may take the view that this salary is not wholly and exclusively for business and disallow it.

Likewise, as the BIM links above indicate it is technically possible of pension contributions to be deemed not wholly and exclusively for business purposes and disallowed but I'm pretty sure when this has been discussed on here before now the general view is that it wouldn't normally be an issue. I wouldn't worry about it but I'm sure somebody can come along and point out some scenarios where this could, in theory be disallowed.

[Gumbo Robot]

Nothing has changed. .

Funny they sent out this letter. Almost as if they're covering themselves against something, however unlikely that something may be...

[Jessica@WhiteFieldTax]

TCPs explanation is spot on. If I were wearing a hat, I would doff it.

Almost as if they're covering themselves against something, however unlikely that something may be...

Yes they are, because they can't control HMRC, in the same way as an accountant or IFA can't. So all advice around pension deductibility needs health warnings appended.

Not ideal for a taxpayer but, alas, sometimes an element of risk has to be taken.

If it helps, in 29 years I've not come across a pension contribution being disallowed. Only once I have seen the totality of a remuneration package challenged by HMRC, and that was an egregious case around sibling salary back in the early 1990s.

[Gumbo Robot]

TCPs explanation is spot on. If I were wearing a hat, I would doff it.



Yes they are, because they can't control HMRC, in the same way as an accountant or IFA can't. So all advice around pension deductibility needs health warnings appended.

Not ideal for a taxpayer but, alas, sometimes an element of risk has to be taken.

If it helps, in 29 years I've not come across a pension contribution being disallowed. Only once I have seen the totality of a remuneration package challenged by HMRC, and that was an egregious case around sibling salary back in the early 1990s.

Thanks. That does allay my fears somewhat.

Just odd that they've sent this letter now, after all the years I've been with them.

Perhaps I'll just drop them an email....