We now have the long awaited Revenue guidance on deductibility (or perhaps we should say “non deductibility”!) of pension contributions made by employers post A Day.

If you would like to read the guidance firsthand it can be found which doesn't make particularly pleasant reading, it can be found at http://www.hmrc.gov.uk/practitioners/registered-pensions.htm

Pensions contributions by employers on behalf of controlling directors or their friends or relatives will not be deductible against corporation tax unless the local inspector is satisfied they are for the purpose of the business.  This, of course, is the rule that applies to any other business expense, and we were expecting such an announcement.

Local inspectors have been told to compare whatever is paid into the pension with what either is or would be paid into pensions for ordinary employees doing similar work.  If it is significantly greater, then it will be considered as being for the benefit of the individual rather than for the benefit of the business, and will therefore not be allowable.  They have also been told to look carefully at the amount of salary a director is paid.  If that salary is either higher or lower than might be considered reasonable for the work done, the Inspector can take that as evidence that the pension payment is not entirely for the purpose of the business.

This will have an effect on using approved pensions either as a pure tax planning vehicle or as a tax-efficient means of extracting profits from a company.

Now would be a very good time for a review of your pensions tax strategy.

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