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Where Taxpayers and Advisers Meet

HMRC approval

braintree
Posts: 4
Joined: Wed Sep 09, 2015 10:52 am

HMRC approval

Postby braintree » Wed Sep 09, 2015 11:00 am

A company is making a directors personal pension contribution. The director is close to retirement age and has not paid into the pension for many years so now wants to maximise contributions so they want to put in a similar amount to what they would otherwise normally take as a dividend. HMRC has to give approval for pension contributions as an allowable expense for corporation tax. Does the company ask HMRC at the end of the financial year when preparing the accounts, or can the company ask HMRC straight after making the contribution?

jpcentral
Posts: 924
Joined: Wed Aug 06, 2008 3:28 pm
Location: Loughborough
Contact:

Re: HMRC approval

Postby jpcentral » Wed Sep 09, 2015 4:53 pm

On what basis do you think you need approval? This is the general guidance:

S34 Income Tax (Trading and Other Income) Act 2005, S54 Corporation Tax Act 2009

A pension contribution by an employer 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.


Are you saying that the director isn't employed or are you wanting to make contributions in excess of the allowable limits?
John Perry
Central Business Services
Loughborough
http://www.centralbusiness.co.uk

braintree
Posts: 4
Joined: Wed Sep 09, 2015 10:52 am

Re: HMRC approval

Postby braintree » Thu Sep 10, 2015 6:03 pm

John

Thank you for your reply. The payment would be paid from the company into the director's SIPP. The amount would use up a couple of years of unused personal pension allowances, so if this is what you refer to then no, it would not exceed allowable limits. It would account for most of the pre-tax profits for the year, but the amount will be broadly in line with the amount the director has taken in previous years as dividends.

I had thought that all pension contributions had to be approved by HMRC. Maybe I am simply misunderstanding what is meant by this, i.e. no special procedure is required? The payment is just made, and if HMRC raise a query, then the query is answered and they make a decision accordingly. is that in fact how it works?

Thanks!

robbob
Posts: 2995
Joined: Wed Aug 06, 2008 4:01 pm

Re: HMRC approval

Postby robbob » Thu Sep 10, 2015 6:20 pm

I am not expert on this subject but i think it could possibly be challenged on the basis that the amount is on a non commercial basis (like excessive salary?) from what i have seen said though that as long as the bod involves performs a role that could justify a high-ish salary then there should be no challenges practicably speaking.

So this would account for your understanding that there may be an element of doubt without there being any formal need for approval.

In this matter take my comments with a pinch of salt.

braintree
Posts: 4
Joined: Wed Sep 09, 2015 10:52 am

Re: HMRC approval

Postby braintree » Thu Sep 10, 2015 7:56 pm

The reason I ask about approval is in the context of advice from the pension advisory service. It read:
A company can pay any amount of pension contribution to employees regardless of their salary. The key issue is that the level of the total remuneration package is commercially reasonable for the work done. But as tax relief is not automatic it is up to the employer's local inspector of taxes to decide whether the employer receives tax relief on the entire contribution.

It infers that someone (the director? the company's auditors?) has to initiate an request with the local HMRC office to allow the contribution to appear on the P&L as an allowable expense when calculating pre-tax profits and CT thereon. It infers that if there is a pension contribution the accounts cannot be audited and filed with reduced CT calculated accordingly.

jpcentral
Posts: 924
Joined: Wed Aug 06, 2008 3:28 pm
Location: Loughborough
Contact:

Re: HMRC approval

Postby jpcentral » Fri Sep 11, 2015 12:58 pm

There are some transactions where Statutory Clearance is required in advance. Pension contributions isn't one of them.

The system is "self assessment" so the taxpayer (ie the company) has to decide whether the expense is justified and include it in the tax computation. An inspector can query it at a later date.

It is best to have a written note to show that the matter was considered and why the decision was made to include the contribution just in case there is a query.

I think the comment by Robbob is correct. The only real grounds it could be challenged on is one of excessive salary and that is very difficult to argue, even for a tax inspector, if the person involved has done a reasonable amount of work for the company.
John Perry
Central Business Services
Loughborough
http://www.centralbusiness.co.uk

braintree
Posts: 4
Joined: Wed Sep 09, 2015 10:52 am

Re: HMRC approval

Postby braintree » Fri Sep 11, 2015 3:47 pm

John

Thank you for this. It is very helpful and informative.

King_Maker
Posts: 6538
Joined: Wed Aug 06, 2008 3:22 pm

Re: HMRC approval

Postby King_Maker » Fri Sep 11, 2015 4:17 pm

No explicit Approval from HMRC is necessary - however, that does not mean that they will not seek further information to see if the Pension Contribution qualifies for a CT deduction.

The biggest mistake is often not making the physical payment in the period of account - an accrual will not be accepted by HMRC.


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