Another question about directors' pensions and the "wholly and exclusively" thing

mybestattempt

mrodent33 said:

You seem to be confusing your role as employee of your ltd company with director of it. If your total remuneration package as an employee is reasonable (this includes salary, employer pension conts etc), then I can't see an issue. But this is an issue to speak to your accountant about, that's what you pay them for. 

I don't think I am confusing those roles: where's your evidence?

In fact no, I don't pay my accountant for that: I pay him to produce the accounts and to submit the CT600. 

I currently don't believe most accountants understand much about the reality of HMRC's policy and its interpretation of what I believe to be its incoherent rules. There's an interesting document here from 2006 about a consultancy which witnessed the introduction, by HMRC, of the "'Pension Simplification’ or ‘A-Day’" in 2006, and also had to respond accordingly in its dealing with its clients. It's quite an eye-opener.

What's striking is that since this time, 20 years ago, HMRC has never seen fit to replace this "wholly and exclusively" expression by what I might call a more honest expression. I believe, as I've said, that in reality this test which the HMRC applies is "is a company paying someone too much for the work they do?". 

However, I'd be very happy to listen to a suitably qualified and experienced expert explain to me why I've totally misunderstood all this stuff, particularly if they were then to go on to explain the true position.

Obviously if the going rate for the job is min wage no employer is going to pay £60k into their pension. Why would they? Nothing to do with HMRC rules. 

The whole point here is that if a director was indeed intent on committing fraud, they might indeed employ their spouse (for example) who in reality did virtually nothing, and pay them minimum wage ... but also get the company to pay £60k into their SIPP. It seems curious to add a post to this thread to the effect of "why would anyone commit fraud?", when the whole point of my thread is to understand how HMRC goes about ascertaining fraud. Most of the case law cases which I've seen seem to relate to this sort of "third-party bogus job" type scenario.

The words "wholly and exclusively for the purposes of the trade" are stated in the relevant legislation:

https://www.legislation.gov.uk/ukpga/2009/4/section/54

The BIM contains a great deal of guidance for HMRC officers about deciding whether there is a trade purpose based upon the principles established by the courts:

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim37050


I think your focus on excessive remuneration and fraud is misplaced and you need to apply your thoughts and arguments to the specific facts of your situation.

It seems to me that you, as the controlling mind of the company, decided it would make a payment of £60k which did not serve the company in any way but was entirely for your personal benefit.

zagfles

mrodent33 said:

You seem to be confusing your role as employee of your ltd company with director of it. If your total remuneration package as an employee is reasonable (this includes salary, employer pension conts etc), then I can't see an issue. But this is an issue to speak to your accountant about, that's what you pay them for. 

I don't think I am confusing those roles: where's your evidence?

In fact no, I don't pay my accountant for that: I pay him to produce the accounts and to submit the CT600. 

I currently don't believe most accountants understand much about the reality of HMRC's policy and its interpretation of what I believe to be its incoherent rules. There's an interesting document here from 2006 about a consultancy which witnessed the introduction, by HMRC, of the "'Pension Simplification’ or ‘A-Day’" in 2006, and also had to respond accordingly in its dealing with its clients. It's quite an eye-opener.

What's striking is that since this time, 20 years ago, HMRC has never seen fit to replace this "wholly and exclusively" expression by what I might call a more honest expression. I believe, as I've said, that in reality this test which the HMRC applies is "is a company paying someone too much for the work they do?". 

However, I'd be very happy to listen to a suitably qualified and experienced expert explain to me why I've totally misunderstood all this stuff, particularly if they were then to go on to explain the true position.

Well pay for one then, eg your accountant, like I suggested above. This is a pensions forum, not a small business legislation forum.

Obviously if the going rate for the job is min wage no employer is going to pay £60k into their pension. Why would they? Nothing to do with HMRC rules. 

The whole point here is that if a director was indeed intent on committing fraud, they might indeed employ their spouse (for example) who in reality did virtually nothing, and pay them minimum wage ... but also get the company to pay £60k into their SIPP. It seems curious to add a post to this thread to the effect of "why would anyone commit fraud?", when the whole point of my thread is to understand how HMRC goes about ascertaining fraud. Most of the case law cases which I've seen seem to relate to this sort of "third-party bogus job" type scenario.

You're not getting it. It's not about fraud or fake employment. You claimed that "directors enjoy special privileges", which is not true, they don't. There's no such thing as a "director's pension contribution". There's employer pension contributions, which are available to anyone with an employer offering a salary sacrifice scheme. I was comparing a one man band ltd company which makes a profit of say £85k, with an employee of a company (which they don't control) earning £85k and which offers sal sac. Both have the same opportunity and tax treatment when it comes to pension conts. 

Anyway, your original question has been answered, I answered it before the thread got cluttered with the merged thread, first post on page 2. 

mrodent33

It seems to me that you, as the controlling mind of the company, decided it would make a payment of £60k which did not serve the company in any way but was entirely for your personal benefit.

Haha. If you are so certain that a pension contribution can "serve" a company or be for anything other than for "personal benefit", give me an example of how this could happen in practice. One example would be sufficient.

"The shareholding director (beneficial owner) is different to an employee.    HMRC won't blink at a beneficial owner making significant pension contributions.   The wholly and exclusively test is aimed at employees." 

3 posts above, by dunstonh, whose signature states that (s)he is an IFA (and who has made 120k posts here). Why not actually try to provide a reasoned response to the difficult questions, rather than repeatedly stating what you believe to be the case without producing any substantiating evidence?

 

mrodent33

You're not getting it. It's not about fraud or fake employment. You claimed that "directors enjoy special privileges", which is not true, they don't. There's no such thing as a "director's pension contribution". There's employer pension contributions, which are available to anyone with an employer offering a salary sacrifice scheme. I was comparing a one man band ltd company which makes a profit of say £85k, with an employee of a company (which they don't control) earning £85k and which offers sal sac. Both have the same opportunity and tax treatment when it comes to pension conts. 

"The shareholding director (beneficial owner) is different to an employee.    HMRC won't blink at a beneficial owner making significant pension contributions.   The wholly and exclusively test is aimed at employees." 

3 posts above, by dunstonh, whose signature states that (s)he is an IFA (and who has made 120k posts here).

Dustonh's term "beneficial owner", i.e. a director who is also the sole shareholder (or a substantial shareholder), obviously introduces a nuance here which implicitly applies to my question, since I mentioned at the start that I am the sole shareholder.

So the question has in reality always been about a director who is also a (in my case) sole shareholder. This particular type of director clearly does have special privileges, at least according to dunstonh.

zagfles

mrodent33 said:

You're not getting it. It's not about fraud or fake employment. You claimed that "directors enjoy special privileges", which is not true, they don't. There's no such thing as a "director's pension contribution". There's employer pension contributions, which are available to anyone with an employer offering a salary sacrifice scheme. I was comparing a one man band ltd company which makes a profit of say £85k, with an employee of a company (which they don't control) earning £85k and which offers sal sac. Both have the same opportunity and tax treatment when it comes to pension conts. 

"The shareholding director (beneficial owner) is different to an employee.    HMRC won't blink at a beneficial owner making significant pension contributions.   The wholly and exclusively test is aimed at employees." 

3 posts above, by dunstonh, whose signature states that (s)he is an IFA. 

Dustonh's term "beneficial owner", i.e. a director who is also the sole shareholder (or a substantial shareholder), obviously introduces a nuance here which implicitly applies to my question, since I mentioned at the start that I am the sole shareholder.

So the question has in reality always been about a director who is also a (in my case) sole shareholder. This particular type of director clearly does have special privileges, at least according to dunstonh.

Again, you're not getting it. Directors do not enjoy any special privileges as you claimed. Any genuine employee (let's set aside strawmen like paying excessive remuneration to a fake employee eg spouse who dusts your PC) has the same options as a director wrt pensions. If your company makes £x profit and I make £x as an employee of a company offering sal sac, we both have exactly the same options and tax treatment for pension conts. 

Your question has been answered. 

mrodent33

Directors do not enjoy any special privileges as you claimed. Any genuine employee (let's set aside strawmen like paying excessive remuneration to a fake employee eg spouse who dusts your PC) has the same options as a director wrt pensions. If your company makes £x profit and I make £x as an employee of a company offering sal sac, we both have exactly the same options and tax treatment for pension conts. 

Your question has been answered. 

So you're saying dunstonh (apart from being an IFA, apparently also the most prolific poster in this forum) is wrong. But without adducing any evidence to back up your claim. "You're not getting it." Who am I going to be more likely to conclude is right? 

My question has indeed been answered.

zagfles

mrodent33 said:

Directors do not enjoy any special privileges as you claimed. Any genuine employee (let's set aside strawmen like paying excessive remuneration to a fake employee eg spouse who dusts your PC) has the same options as a director wrt pensions. If your company makes £x profit and I make £x as an employee of a company offering sal sac, we both have exactly the same options and tax treatment for pension conts. 

Your question has been answered. 

So you're saying dunstonh (apart from being an IFA, apparently also the most prolific poster in this forum) is wrong. But without adducing any evidence to back up your claim. "You're not getting it." Who am I going to be more likely to conclude is right? 

My question has indeed been answered.

For a start, I've proved dunstonh wrong on several occasions. However in this case, he's not saying what you think he is. Simply that "HMRC won't blink at a beneficial owner making significant pension contributions". Exactly the same would apply to any genuine employee with a genuine total remuneration package. 

You aren't privileged, get over it. I can get the exact same pension benefits as you and I'm an ordinary employee. I can divert salary to pension just as you can divert profits to pension. Believe me or not, I don't care. Bye. 

mrodent33

For a start, I've proved dunstonh wrong on several occasions. However in this case, he's not saying what you think he is. Simply that "HMRC won't blink at a beneficial owner making significant pension contributions". Exactly the same would apply to any genuine employee with a genuine total remuneration package. 

You aren't privileged, get over it. I can get the exact same pension benefits as you and I'm an ordinary employee. I can divert salary to pension just as you can divert profits to pension. Believe me or not, I don't care. Bye. 

Quite a peevish tone emerging (or continuing), which says more about you than about the substantive issue. In fact I've understood the nuance of what dunstonh is saying pretty clearly.

The question isn't about privilege, it was about the way HMRC use and interpret this expression "wholly and exclusively". However, as the people who take the decisions, and this applies particularly to directors who are sole shareholders (as is usually the case with micro-companies), directors obviously enjoy the privilege of being able to decide what salaries and pension contributions are to be made, in a way non-director employees obviously don't.

The clearest description of the allowability test I've been able to find "from the horse's mouth" is this HMRC page:

One situation where all or part of a contribution may not have been paid wholly and exclusively for the purposes of the trade is where the level of the remuneration package is excessive for the value of the work undertaken by that individual for the employer. In this situation, you should consider whether the amount of the overall remuneration package, not simply the amount of the pension contribution, was paid wholly and exclusively for the purposes of the employer’s trade.

This proves to me that the expression "wholly and exclusively for the purposes of the employer's trade" has nothing whatsoever to do with "making a profit" or "serving the company". To repeat ad nauseam the bleedin obvious, no pension payment could ever conceivably do either thing. The judgement is obviously made in relation to the overall situation of the person concerned, i.e. is their total remuneration appropriate for the work they are doing or have done?

One inevitable implication of this is that a company which is paying an employee a very small salary for an important job could then potentially pay them a large pension contribution at the same time. I'm not sure what the situation is with non-employee directors. Personally I am the sole shareholder, sole director and sole employee. The notion of "important job" must then be significant: if a one-person band makes profit of £300k, this figure is presumably an accurate gauge of "the value of the work undertaken by that individual for the employer".

And yes, this expression used by HMRC since 2006 is (very clearly, judging by this thread!) sufficiently inelegant as to have misled and confused many many people. I think it should be changed for something clearer.

As it happens, I don't care either. Bye.

mybestattempt

mrodent33 said:

It seems to me that you, as the controlling mind of the company, decided it would make a payment of £60k which did not serve the company in any way but was entirely for your personal benefit.

Haha. If you are so certain that a pension contribution can "serve" a company or be for anything other than for "personal benefit", give me an example of how this could happen in practice. One example would be sufficient.

"The shareholding director (beneficial owner) is different to an employee.    HMRC won't blink at a beneficial owner making significant pension contributions.   The wholly and exclusively test is aimed at employees." 

3 posts above, by dunstonh, whose signature states that (s)he is an IFA (and who has made 120k posts here). Why not actually try to provide a reasoned response to the difficult questions, rather than repeatedly stating what you believe to be the case without producing any substantiating evidence?

 

The issue is about company taxation and whether the company can claim a deduction in computing it's profits for a payment of £60k to the SIPP of it's sole shareholder/director.

The legislation requires expenditure to have been made wholly and exclusively for the purposes of the trade.

On 24 October 2024 you stated "I have paid myself, through the company a directors SIPP contribution of £60k by lending the company a lot of my own money"

The purpose of the expenditure was to make a contribution to a SIPP; that was the clear aim and objective of the expenditure.
 
To demonstrate the expenditure was for the purposes of the trade  the company must show the expenditure was incurred for the purpose of earning profits for it. (The relevant case law is detailed in BIM 37060).

Nothing you have said demonstrates the expenditure was intended to earn profits for the company.

There are no special privileges because you are the sole shareholder/director of the company around pension contributions. In fact as the controlling mind of the company you have the responsibility to ensure the company makes correct tax returns.

mrodent33

To demonstrate the expenditure was for the purposes of the trade  the company must show the expenditure was incurred for the purpose of earning profits for it. 

Your fixation is becoming tiresome. I'm actually convinced that you know what you're saying is nonsense.

In my previous post to you I invited you to do one simple thing, which is the only way you might begin to show that my company's pension contribution was in some way illegitimate: give me one example of how a pension contribution is EVER, in ANY circumstances, able to "earn profits for the company". 

In a way it's illuminating to hear just how far this particular choice of wording of HMRC since 2006 has bamboozled and confused people like yourself. It confirms, indeed, that this may be thought to be a case, as I said before, of inadvertent or deliberate obfuscation by HMRC.

Nice hearing your views. Bye.