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| THE ‘WHOLLY AND EXCLUSIVELY’ TEST: PENSION CONTRIBUTIONS |
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Monthly Tax Review by Matthew Hutton MA, CTA (fellow), AIIT, TEP Matthew Hutton MA, CTA (fellow), AIIT, TEP author and presenter of Monthly Tax Review highlights a recent change of view by HMRC on employer pension contributions for controlling director shareholders and others.ContextHM Revenue & Custom’s draft guidance in BIM 46025 suggested that HMRC considered that remunerating a director with a substantial pension contribution would not necessarily be for the purposes of the trade and therefore not be allowable for tax purposes. This was then followed up reports that HMRC had reconsidered their view.Happily this turns out to be the case, as posted on the HMRC website on 31 March 2006. BIM46025: Specific Deductions: Registered Pension Schemes: Wholly & Exclusively: Controlling directors & shareholders A pension contribution to a Registered Pension Scheme in respect of any director or employee will be an allowable expense unless there is a non-trade purpose for the payment. Whether there was a non-trade purpose for the payment will depend upon the facts of the individual case. The case of Samuel Dracup & Sons Ltd v Dakin [1957] 37 TC 377 (see BIM 37745) was decided on its own particular facts. It confirms that, where there is a non-trade purpose for the payment, then the payment is disallowable, but you should not read more into it than that. In cases where the contribution is part of a remuneration package paid wholly and exclusively for the purposes of the trade, then the contribution is an allowable expense. 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. General guidance on deductions for remuneration paid to close relatives of directors can be found at BIM 47105. Where the remuneration package paid in respect of a director, who is also a controlling shareholder, or an employee who is a close relative or friend of the business proprietor or controlling director is comparable with that paid to unconnected employees, you should accept that the contributions are paid wholly and exclusively for the purposes of the trade. When there are no employees whose duties are genuinely comparable with the proprietor or relative, you should follow the general guidance at BIM 47105. Where the facts show that a definite part or proportion of an expense is not wholly and exclusively laid out or expended for the purposes of the trade, profession, or vocation, only disallow that part or proportion (ITTOIA 2005 s34(2) and the judgement of Lord Reid in Ransom v Higgs [1974] 50 TC 1 at page 82). (HM Revenue & Customs website) Matthew Hutton MA, CTA (fellow), AIIT, TEP June 2006 About Monthly Tax Review (MTR)MTR is a 90 minute monthly training course, held in London, Ipswich and Norwich – as well as a reference work. Each Issue records the most significant tax developments over a wide range of subjects (see below) during the previous month, containing 30 to 40 items. The aim is not necessarily to take the place of the journals, but rather to provide an easily digestible summary of them and, through the six-monthly Indexes, to build up, over the years, a useful reference work.Who should come to MTR? Does it attract CPD?MTR is designed not primarily for the person who spends 100% of his/her time on tax, but rather for the practitioner (whether private client or company/commercial) for whom tax issues form part of his/her practice. Attendance at MTR qualifies for 1.5 CPD hours for members of the Law Society, for 1.5 CPD points for accountants (if MTR is considered relevant to the delegate’s practice) and (subject to the individual’s self-certification) should also count towards training requirements for the CIOT. For STEP purposes, MTR qualifies for CPD in principle, on the grounds that at least 50% of the content is trust and estate related.How is MTR circulated?The Notes are emailed to each delegate in the week before the presentations (and thus can easily be circulated around the office), with a follow-up page or two of practical points arising during the various sessions (whether in London, Ipswich or Norwich).How do I find out more? For further details, and for those whose firms unable to make the monthly seminars but wishing to order MTR as 'Notes Only' (at £180 per annum for the 12 issues, invoiced six-monthly in advance), click here.
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About The Author  Mark McLaughlin is TaxationWeb's Co-Founder, Director and Technical Editor. He is a Fellow of the Chartered Institute of Taxation and a member of the Association of Taxation Technicians and the Society of Trust and Estate Practitioners. He lectures on tax subjects, is co-author of Tottel's IHT Annual and Ray & McLaughlin's IHT Planning, and Editor of Tottel's Tax Planning and Annual series. Mark's work has also been published in Taxation, Tax Adviser, Tolley's Practical Tax, Tax Journal and Simon's Weekly Tax Intelligence. Since January 1998, Mark has been a consultant in his own tax practice, Mark McLaughlin Associates, which provides tax consultancy and support services to professional firms. He publishes a regular 'Tax Update' e-Newsletter for clients and other professional firms. To receive future copies, contact Mark via his website. |
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Article Added Saturday, 22 July 2006 | 4986 Hits |
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