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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