Ltd Company Pension Contributions

Marcon

billy2shots said:

dunstonh said:

So I don't know how carry forward could work for employer pension contributions.

It works fine.  Carry forward doesn't change the date of the pension contribution.  Carry forward allows the use of unused allowances, but the contribution is still made in the current year.

But according to multiple places on the net you can't use all the available carry forward even if you have the money in your account if that exceeds the current years profit. 


I'm really hoping someone made a mistake staying this then dozens of sites have been lazy copying the mistake. 

Please come back and tell us what your accountant said, if you wouldn't mind? It seems quite a grey area, or more accurately one which is open to being misunderstood. I'm wondering if there is an interaction with the requirement for the company's contribution to be 'reasonable and proportionate' - and if you've not had any pension contributions in the previous two years, possibly that's a line they might argue?

billy2shots

Marcon said:

billy2shots said:

dunstonh said:

So I don't know how carry forward could work for employer pension contributions.

It works fine.  Carry forward doesn't change the date of the pension contribution.  Carry forward allows the use of unused allowances, but the contribution is still made in the current year.

But according to multiple places on the net you can't use all the available carry forward even if you have the money in your account if that exceeds the current years profit. 


I'm really hoping someone made a mistake staying this then dozens of sites have been lazy copying the mistake. 

Please come back and tell us what your accountant said, if you wouldn't mind? It seems quite a grey area, or more accurately one which is open to being misunderstood. I'm wondering if there is an interaction with the requirement for the company's contribution to be 'reasonable and proportionate' - and if you've not had any pension contributions in the previous two years, possibly that's a line they might argue?

I shall be back, hopefully with some good news. 

Gary1984

ComicGeek said:

billy2shots said:

dunstonh said:

So I don't know how carry forward could work for employer pension contributions.

It works fine.  Carry forward doesn't change the date of the pension contribution.  Carry forward allows the use of unused allowances, but the contribution is still made in the current year.

But according to multiple places on the net you can't use all the available carry forward even if you have the money in your account if that exceeds the current years profit. 


I'm really hoping someone made a mistake staying this then dozens of sites have been lazy copying the mistake. 

Perhaps it's just that the company can't claim corporation tax relief on employer pension payments where they exceed the current years profit (ie you can't have a negative corporation tax bill and claim money back from HMRC, where it hasn't been a genuine trading loss and you've just deliberately over contributed to pensions).

I expect that this is what they mean, they've just worded it horribly. Your ltd co can absolutely can make pension contributions even if loss making. Otherwise any number of companies would need to cease pension contributions in any given year, which would probably be illegal.

ComicGeek

Gary1984 said:

ComicGeek said:

billy2shots said:

dunstonh said:

So I don't know how carry forward could work for employer pension contributions.

It works fine.  Carry forward doesn't change the date of the pension contribution.  Carry forward allows the use of unused allowances, but the contribution is still made in the current year.

But according to multiple places on the net you can't use all the available carry forward even if you have the money in your account if that exceeds the current years profit. 


I'm really hoping someone made a mistake staying this then dozens of sites have been lazy copying the mistake. 

Perhaps it's just that the company can't claim corporation tax relief on employer pension payments where they exceed the current years profit (ie you can't have a negative corporation tax bill and claim money back from HMRC, where it hasn't been a genuine trading loss and you've just deliberately over contributed to pensions).

I expect that this is what they mean, they've just worded it horribly. Your ltd co can absolutely can make pension contributions even if loss making. Otherwise any number of companies would need to cease pension contributions in any given year, which would probably be illegal.

I would think there's a difference between a contractual agreement on pension contributions as part of an overall salary agreement for employees, and an adhoc pension contribution for directors as well.

billy2shots

Following my visit to the accountant.

All nonsense apparently. Alhough the earlier statement appears on 6 different websites on the first page of a Google search, it is wrong apparently. 

The HMRC literature does not contain such stipulations and can therefore be ignored. 

Obviously the Wholly and Exclusively elements need to be met which if fine and understandable. 

sita25

It's interesting to read this thread, as my small family-owned company is in the same position.  We have retained profit from previous years, plenty of pension allowance available and small pensions that we want to bring up to a more acceptable level.  However, the company only makes a modest annual profit which would be less than the contribution we want to make.  Our accountant seems to have limited knowledge of the rules and has been less than helpful.

An issue that we're running into is that if the lump sum pension contribution creates a loss (or break-even) for the year, then there's no profit available to pay dividends, which are the bulk source of our general living costs. The options seem to be either to pay a larger amount into pensions, take no dividends and live off savings for a while, or take our regular dividends, leave the retained profit in the company account earning a paltry 1%, and only be able to pay any small annual profit remaining into the pensions.  OP, have you had the same issue and how are you dealing with it? 

In relation to whether HMRC would investigate a large lump sum, I was informally told by a different accountant that it probably wouldn't be an issue if the company had made small or irregular director pension contributions in the past.  So if the pensions were considered underfunded then a large one-off lump sum would just be seen as levelling the it up to where it should be.  However, if a company was making regular large contributions and trying to make an extra one to dodge corporation tax then I was told that HMRC would be more likely to have an issue with it.

billy2shots

On your last point first. 
My accountant said exactly what you mentioned. Larger pension lump sums would not be an issue given I have underfunded the pension in recent years. The issue is then strengthened because I only take a small salary allowing money to remain within the business to compensate me. It's more about the balance of total package. 

No problem taking more pension than trading year profit in his professional view. 

I had no reason to ask about dividends creating a trading loss. As corporation tax has previously been paid in past years for those profits, I would highly doubt it would be an issue.

sita25 said:

It's interesting to read this thread, as my small family-owned company is in the same position.  We have retained profit from previous years, plenty of pension allowance available and small pensions that we want to bring up to a more acceptable level.  However, the company only makes a modest annual profit which would be less than the contribution we want to make.  Our accountant seems to have limited knowledge of the rules and has been less than helpful.

An issue that we're running into is that if the lump sum pension contribution creates a loss (or break-even) for the year, then there's no profit available to pay dividends, which are the bulk source of our general living costs. The options seem to be either to pay a larger amount into pensions, take no dividends and live off savings for a while, or take our regular dividends, leave the retained profit in the company account earning a paltry 1%, and only be able to pay any small annual profit remaining into the pensions.  OP, have you had the same issue and how are you dealing with it? 

In relation to whether HMRC would investigate a large lump sum, I was informally told by a different accountant that it probably wouldn't be an issue if the company had made small or irregular director pension contributions in the past.  So if the pensions were considered underfunded then a large one-off lump sum would just be seen as levelling the it up to where it should be.  However, if a company was making regular large contributions and trying to make an extra one to dodge corporation tax then I was told that HMRC would be more likely to have an issue with it.

dunstonh

An issue that we're running into is that if the lump sum pension contribution creates a loss (or break-even) for the year, then there's no profit available to pay dividends, which are the bulk source of our general living costs. 

What about the retained profits?    

In relation to whether HMRC would investigate a large lump sum, I was informally told by a different accountant that it probably wouldn't be an issue if the company had made small or irregular director pension contributions in the past.  So if the pensions were considered underfunded then a large one-off lump sum would just be seen as levelling the it up to where it should be.  However, if a company was making regular large contributions and trying to make an extra one to dodge corporation tax then I was told that HMRC would be more likely to have an issue with it.

HMRC rarely look at the pension contributions to a shareholding director as long as it is by the way of business.
They are more likely to look at contributions to company secretaries or spouses that are on the books as cleaners or some other paper job.

It is about the role of the individual and their position and not about the historic size of contributions vs current. 

dshart

I think you may be misreading what is said. The way I read the statement you posted is that you can at maximum contribute is equivalent to the profits for that year, so if las year you made £10k profit and this year £20k you could put maximum £30k in your pension using the carry forward.

At least thats the way I read it, but I am no expert.

Grumpy_chap

sita25 said:

It's interesting to read this thread, as my small family-owned company is in the same position.  We have retained profit from previous years, plenty of pension allowance available and small pensions that we want to bring up to a more acceptable level.  However, the company only makes a modest annual profit which would be less than the contribution we want to make.  Our accountant seems to have limited knowledge of the rules and has been less than helpful.

An issue that we're running into is that if the lump sum pension contribution creates a loss (or break-even) for the year, then there's no profit available to pay dividends, which are the bulk source of our general living costs. 

You can use retained profits from previous years to pay a dividend this year, even if this year shows a loss.

Of course, if you use all the retained profits from previous years plus the potential profits from this year to make pension contributions, then you cannot use the same money twice to pay dividend also. At least, not outside a paper exercise.