Planning with pension contributions

By Tolley
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The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Planning with pension contributions
  • Tax relief for employer pension contributions
  • Tax relief for pension contributions in respect of controlling directors and shareholders
  • Timing of relief for employer pension contributions
  • Other issues in relation to employer pension contributions

Tax relief for employer pension contributions

Tax relief is available for employer pension contributions based on broadly the same rules as other types of expenditure. Expenditure is an allowable deduction from trading profits as long as it is incurred wholly and exclusively for the purposes of the trade. Whether an amount is paid wholly and exclusively for the purposes of the trade is a question of fact to be determined on the specific circumstances of each case.

The considerations which need to be applied in determining the availability of tax relief for employer pension contributions differ from those applicable to other expenses in that pension contributions are not treated as capital payments for tax purposes.

Another rule which is specific to pension contributions is that there are special rules regarding the timing of tax relief (see below).

HMRC guidance suggests that there are limited circumstances when there may be a non-trade purpose for the level of employer contributions. Examples of instances where there may be a non-trade purpose are given in BIM46030. These include contributions made in the following circumstances:

    More on Extraction of profit: