From A Day, 6 April 2006, the new
pension regime will finally take effect. We have previously
reported on the introduction of the new rules and HMRC
have recently published their draft internal guidance
on whether or not employer pension contributions will
be deductible for tax purposes.
Under the new regime, pension contributions by the employer
must be physically paid and satisfy a wholly and exclusively
test. The HMRC guidance advises that the contribution
will be looked at carefully, especially where the salary
is less than the commercial rate and the pension contribution
appears to have been inflated.
The situation described in the HMRC guidance is quite
common in small owner managed businesses and typically
would apply to director shareholders. The professional
bodies are expected to challenge HMRC’s interpretation
of these rules but care should be taken when making employer
pension contributions until this matter is clarified.
Internet link:
HMRC Business Income manual
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