Rule around maximun contributions over 3 years backdated

SomeMadeUpName

dunstonh said:

SomeMadeUpName said:

SomeMadeUpName said:

dunstonh said:

If a limited company and the contribution would be more than your gross profit, then you need to speak to your accountant to see if any shifting of losses could take place.  If not, you can always defer the remainder of the contribution to the next tax year.

Hi, your comment above set  me wondering what the rules are you refer to here.  A quick Google didn't help.  I was hoping you could expand a little on this area, or point me at some web reference material.  Interesting you make a point of saying gross (as opposed to net) profit.

Thx for any info.

Found some reference material on HMRC (PTM043000) and it makes useful reading, but still not sure what you refer to in regard to employer pension contributions being in excess of gross profit.

If you don't have the profit to cover all of the contributions, then you won't be reducing your corporation tax bill on the amount in excess of the gross profit.     So, if your gross profit is £30k, then usually, it's not worth making a contribution of £40k (even though you can).  However, the accountant may be able to shift profit/loss between years.  

Hi, thx for that.

So actually it is net profit, not gross profit that is applicable.

But going back to the OP situation (if he is indeed Ltd not sole trader) then even if his net profit is not £120k for that year then he can trade at a loss (after contrib in overhaed) then offset that loss against the next years profit (which should be a profit as then he will only be able to do employer contrib of £40k).

In other words shift the losses around, like you said.

One other wringle I noticed whilst reading the ref docs I linked to:

We closed a year at end of Aug.  We had paid a salary bonus to my wife on the last month so that's in the books, but she is also owed a further tranche of bonus into pension.  Prior to the reading I had thought the 'pension bonus' would show in the 20/21 accounts and come off the CT bill for that 20/21 year. BUT apparently you can only claim CT relief on payments MADE, not payments OWING.  So whilst the 'pension bonus' will show in the 20/21 accounts it will be disallowed in the 20/21 CT calcs, but then applied when the 21/21 calcs are done (assuming it is delivered in the 21/22 year, which it will be). 

Just in case that rather niche information is of any use to anyone out there other than us!

SomeMadeUpName

Thinking about the gross/net thing:

I suspect maybe you are using gross profit to mean before tax and net to mean after.  That's the convention when talking about individual's incomes.

The convention I am used to when taking about business accounts is that gross profit is the profit of the trade (so sales less cost of sales). Net profit is the gross profit less overhead (insurance, premises, admin, utilities etc etc).  Then a business is CT'd on their net profit.  Then finally that net profit less CT is transferred to the balance sheet.

JackSprout

Although I do have defered cash from previous years I wont be using that money to fund my SIPP, I will only use profits thus reducing my CT bill, I will probably only make these payments may be one more to take my pension to about 520K, then after that I will let growth play its part determining wether I retire in 10 years or 20, pulling the trigger when I am near the Life Time Allowance, having tired retirement twice now, I think I need a mate eg my wife to retire with else you run out of things to do quite quickly.

The question I have then is what to do with the profits in a tax efficent way, I may look into a company pension scheme, and although my company sells consultancy I may even buy my BTL into the company or lend to another company that will buy those BTL, this could provide an income for my children, any suggestions welcome.

dunstonh

profit before tax.

Mortgage lenders treat shareholding directors as if they were self-employed. So, you often saw gross/net profit on the lenders forms with the expectation that it was pre/post tax that they were after.   Now, most have moved to just saying pre tax/post tax and no reference to gross/net.    I noticed that none of our recent accounts makes reference to gross profit/net profit anymore. 

SomeMadeUpName

Pre and post tax is a lot less ambiguous imo.

Is it about 16% shareholding when they (lenders) stop seeing a director as an employee and start to view as an 'owner' and therefore want to dig into Co accounts?

dunstonh

Pre and post tax is a lot less ambiguous imo.

And avoids misinterpretations due to terminology mistakes!

Is it about 16% shareholding when they (lenders) stop seeing a director as an employee and start to view as an 'owner' and therefore want to dig into Co accounts?

It varies.  Santander is 20% for example.  

SomeMadeUpName

dunstonh said:

Pre and post tax is a lot less ambiguous imo.

And avoids misinterpretations due to terminology mistakes!

Is it about 16% shareholding when they (lenders) stop seeing a director as an employee and start to view as an 'owner' and therefore want to dig into Co accounts?

It varies.  Santander is 20% for example.  

My co-director of one business just needed to re-mortgage as his Santander deal was about to expire. Thought I was in for a bit of work to pull together Co info for him to go to the market, but in the end there was no paperwork as he renewed with Santander when they offered him 5 years at 0.99%.  He figured that would give him certainty through to his youngest finishing uni and so pulled the trigger on that. His payment dropped from maybe £400pcm to £332 (int only).

How long can money this cheap last!

MallyGirl

I thought I had done well just switching to 1.16% fixed for 5 years (to see me to the end of daughter's uni).

SomeMadeUpName

MallyGirl said:

I thought I had done well just switching to 1.16% fixed for 5 years (to see me to the end of daughter's uni).

It's an amazing deal, he sent me a sheet of all the alternatives they offered him, and they were all really good.

It's a decent sized mortgage (£400k) and pretty much maxes out the household income multiplier, but does only represent less than 20% of the property value so maybe that helps.

Apologies to the OP for thread drift.

dunstonh

My co-director of one business just needed to re-mortgage as his Santander deal was about to expire. Thought I was in for a bit of work to pull together Co info for him to go to the market, but in the end there was no paperwork as he renewed with Santander when they offered him 5 years at 0.99%.  He figured that would give him certainty through to his youngest finishing uni and so pulled the trigger on that. His payment dropped from maybe £400pcm to £332 (int only).

Retention deals (staying with the same lender) do not require re-underwriting.   Its a very simple process and when the lender is offering decent deals like 0.99% then it's great.  I'm with Santander but my current deal doesn't run out until 2023.  I hope the 0.99% 5 year fixed is still available then.  Although I doubt it.