wholly and exclusively director pension

2stixoftwix

wholly and exclusively - can someone explain in simple English what this actually means in relation to a director paying a £20k pension contribution from his company direct to his pension.

Why would HMRC dispute it?

Linton

I think rather more context would help. What have you done, what have HMRC said about it?

noh

A google search gave this result among others is it relevant to your question?
https://www.barnett-waddingham.co.uk/comment-insight/blog/2017/02/08/employer-contributions-what-wholly-exclusively/

This may help too.
https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim46035

System

It's the same qualification as applies to any company expenditure, if it is to be allowable against corporation tax.


My company accountants said that virtually any pension payment to a director would be accepted without question - it's for the company to decide the actual worth of one of its directors. A director's duties and responsibilities extend over the whole life of the company, and are not limited to any particular year of remuneration.
Has this actually been queried, or are you just asking in case?

Brynsam

Clifford_Pope wrote: »

My company accountants said that virtually any pension payment to a director would be accepted without question - it's for the company to decide the actual worth of one of its directors.

That advice generally holds good. The exception is where there is one director who is also the sole (or majority) shareholder - aka a personal service company. HMRC has indeed been known to query a pension payment which appeared to them to be disproportionate to other elements of remuneration (i.e. low salary + dividends model typically used in this situation). They insisted it needed to be spread over 2 years.

cjking

When I researched this several years ago, the advice I found was that HMRC would not query a director-owner who earned all the companies income. I had a couple of years putting 90% of my turnover into the pension. The idea was that if you earned all the companies money, and got all its profits, there is no way any remuneration paid out of those earnings could be excessive.

Although there was some doubt in the early days after Gordon Brown made big contributions possible, it was later clarified that it was none of HMRC's business what the split was between salary and pension.

Of course things may have change since I last looked at this.

cjking

https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/employer-contributions-and-tax-relief/

The first step for HMRC is to establish whether the level of the total remuneration package i.e. salary, bonuses, commission, benefits in kind and pension contributions is commercially reasonable for the work done. Where a controlling director is the driving force behind the company and whose work generates the company's income (e.g. where the controlling director is the sole owner and employee), the level of the remuneration package is a commercial decision and is unlikely to fail the test. A large employer pension contribution (in comparison to salary) may therefore be able to be claimed as an expense of the company.