Can you justify your pension contribution?

The maximum pension contribution is Β£40k per year and if you haven’t used the allowance in previous years there is a 3 year carry forward of unused contributions.

Most business owners pay this as a company contribution, that should save corporation tax as its a tax deductible expense.

However, does the contribution comply with

BIM46035 – Specific deductions: pension schemes: wholly & exclusively: controlling directors & shareholders

S34 Income Tax (Trading and Other Income) Act 2005, S54 Corporation Tax Act 2009

A pension contribution by an employer to a registered pension scheme in respect of any director or employee will be an allowable expense unless there is a non-trade purpose for the payment.

One situation where all or part of a contribution may not have been paid wholly and exclusively for the purposes of the trade is where the level of the remuneration package is excessive for the value of the work undertaken by that individual for the employer. In this situation, you should consider whether the amount of the overall remuneration package, not simply the amount of the pension contribution, was paid wholly and exclusively for the purposes of the employer’s trade.

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