Employer Pension Contributions

March 2006

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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