Sacrificing common sense?

HMRC HAVE RECENTLY published draft guidance on pension contributions and the 'wholly and exclusively' test see www.hmrc.gov.uk/practitioners/registered-pensions.htm. Brian Lawless's helpful article 'Hitting the wall' (Taxation 9 February 2006 page 465) describes the problems of these proposed rules. I should like to make a few further points in addition to those made by Brian.

Salary sacrifice

In the past the 'wholly and exclusively' test has been applied to ensure that the level of remuneration paid to directors or connected persons was appropriate given the work which the individual had done. This is widely understood and accepted (see for example Copeman v William Flood & Sons Ltd [1940] 24 TC 53 etc. and the Business Income Manual at BIM47105).
However businesses have hitherto not been required to ascertain what percentage of the remuneration should be salary and what part pension. HMRC have...