Summer 2006 Newsletter


Brave New World

Business Not Pleasure

Summertime Blues

All That Glitters...

Casting The Net

Trust Gordon?

It Ain't Over...

One In The Eye

Keep Your Nose Clean

Foreign Affairs

When Is A Car...

Don't Walk Away

Avoiding, The Issue

Brown Is Anti-PC

VAT's Up Doc?

Fuel's Gold

An Age-old Question?

That's Unfair!

Year In Year Out

How Hard To Try?

It's A Rip-Off!

Outlaws Win

Show Some Restraint

Not Our Problem

They Cannot Be Serious?


Pension Disappointments

Brave New World

The world of pensions changed on 6 April - although many people won't have noticed. We have had plenty of warning to get used to the new rules, but now we have to get on with them in practice.

One of the most important changes for small company owners is that personal contributions have to be made out of current year earnings. In recent years, many people have taken advantage of tax savings by paying a small salary and large dividend out of a company - it has still been possible to get tax relief on pension contributions if there were large earnings in the previous five years. That won't be possible any more.

If you want to put money into a pension fund this year, there will be a choice. You can pay yourself a salary and use that to pay pension contributions. The salary will be charged to National Insurance Contributions, which makes it expensive; but you will now be able to put the whole salary into pensions, instead of the old percentage limits that applied up to 5 April 2006.

The other possibility is for the company to pay the pension contribution directly. This has the advantage of not being charged to NIC. However, it will only be tax-efficient if the company can treat the payment as a trading expense. Where the company used to pay a small salary and no pension contribution, and suddenly pays a small salary but a large pension contribution, the Revenue may question whether the contribution is "wholly and exclusively for the trade".

The Revenue have issued guidance on how they will judge this. It seems that they will look at the value of the work done by the individual for the company this year, rather than the history of past payments by the company. But we can see some arguments ahead, and we will be keeping alert for any news of disputes going to court.

If you want to discuss how best to make pension contributions under the new rules, please get in touch.