Pondering a pension

29 June 2006

Issue: 4064 / Categories: Forum & Feedback , IR35

We have a client who is the owner and director of a trading company. For several years he has been paid a salary of about £5,000 p.a. and has received dividends of £42,000 p.a. There are no other directors or shareholders and he works full time for the company.

He is considering starting a pension plan and wishes his company to make employer's contributions to his personal pension plan of £30 000 p.a. We estimate that the commercial remuneration package for our client could easily be as high as £60 000 p.a. given that the company's profits have been growing consistently and currently exceed £250 000 p.a. before dividends.
This is not a company to which IR35 applies.
We are concerned that the pension contribution may not be deductible as HMRC may consider it is not wholly and exclusively incurred for the purposes of the trade.
What are Taxation readers' views on this?
Query T16 832 — Pensive.

Reply by Kalonymous:

The recent change in the rules on the taxation of pensions (and the tax relief of pension contributions) has meant that advisers must rethink the strategies for the extraction of profits from owner-managed businesses. A number of...

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