HMRC warn employers not to use Unfunded Pension Arrangements

HMRC are currently attacking a marketed tax avoidance scheme using unfunded pension arrangements to avoid Corporation Tax, Income Tax and National Insurance contributions.

HMRC strongly believes these arrangements do not work and will seek to challenge anyone promoting or using these arrangements and make sure the correct tax is paid.

The arrangements involve a company creating an unfunded pension obligation to pay one or more of their directors a pension. This is to create an expense in the company accounts to reduce the company’s profit. The intended result of this step is to reduce the amount of Corporation Tax payable.

With many of these arrangements, the company then transfers the pension obligation to a closely associated third party. The third party is usually a relative or colleague of the director due to receive the pension. The intended result of this step is a payment to the director or a closely associated third party, with no immediate liability to Income Tax and National Insurance contributions.

Users of these arrangements may pay considerable fees to use them, yet may still have to repay the tax claimed to be avoided, as well as interest and a penalty.

See: Disguised remuneration: tax avoidance using unfunded pension arrangements (Spotlight 58) - https://www.gov.uk/guidance/disguised-remuneration-tax-avoidance-using-unfunded-pension-arrangements-spotlight-58

25th June 2021 – Hillmans Weekly Update

Below I have summarised all the main tax related updates we have seen this week.

• Check if you're eligible for the coronavirus Additional Restrictions Grant
• Kickstart Scheme grant
• Pension Contributions are tax efficient for employee and employer
• Reminder - P11D Forms due by 6 July

If you have any queries about this week’s content, or if you need any assistance please do not hesitate to contact me.

I hope you have a great weekend.

Stay safe and well.

Cheers,

Steve

Steven Hillman BSc (Hons) ACA
Chartered Accountant
Tel: 01934 444100

Pension Contributions are tax efficient for employee and employer

Pension contributions to approved pension funds on behalf of employees and directors continue to be a tax-free benefit provided the annual input limit is not breached. The contributions are also deductible for the employer provided incurred wholly and exclusively for the purposes of the trade and paid before the end of the accounting period of the business.

For most taxpayers, the annual input limit is £40,000 and this limit includes contributions by the employee and contributions made by the employer on their behalf. It is also possible to take advantage of unused relief from the previous three fiscal years.

Payments into the pension by the employing business will be deductible against business profits. Currently this will only save 19% Corporation Tax, but from 1 April 2023 will save 25% where profits exceed £250,000 and 26.5% where profits are between £50,000 and £250,000. Note that these limits are divided by the number of associated companies, i.e. under common control.

There are provisions for exceptionally large contributions where the deduction is spread over 2, 3 or 4 years.

Although the contribution on behalf of the employee or director may be tax free, they are generally not able to access the fund until age 55. There have been several “schemes” devised over the years to exploit the pension rules. It is therefore important to speak to a qualified Financial Advisor for your own pension advice. 

July 2019 Tax Tips & News

Welcome...

To July's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.

If you need further assistance just let us know or you can send us a question for our Question and Answer Section.

We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.

Please contact us for advice in your own specific circumstances.

We're here to help!                   

July 2019

· Capital allowances SBA update

· HMRC clarify VAT zero-rating of transport of disabled passengers

· Tax-free childcare - don’t miss out!

· Tax-efficient remuneration with pension contributions

· July questions and answers

· July key tax dates

May 2019 Tax Tips & News

Welcome...

To May's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.

If you need further assistance just let us know or you can send us a question for our Question and Answer Section.

We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.

Please contact us for advice in your own specific circumstances. 

We're here to help!

May 2019

· Taxpayer wins IR35 challenge
· Minimum workplace pension contributions rise
· VAT Flat rate scheme
· Rent-a-room tax break remains
· May questions and answers
· May key tax dates
 

March 2017 Tax Tips & News

Welcome... To March's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman. If you need further assistance just let us know or you can send us a question for our Question and Answer Section. We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year. Please contact us for advice on your own specific circumstances. We're here to help! March 2017 · Changes to IR35 rules confirmed · Tax-free access to pension advice · Salary v dividend · Changes to company carry-forward of losses confirmed · March questions and answers · March key tax dates

June 2016 Tax Tips & News

Welcome, to June's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.

If you need further assistance just let us know or you can send us a question for our Question and Answer Section.

We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.

Please contact us for advice in your own specific circumstances. We're here to help!

June 2016

· New PSC register requirements take effect

· OTS examines potential for new trading vehicle

· HMRC go live with Verify identity authentication

· Free pension advisory services to be merged

· June Questions and Answers

· June Key Tax Dates

Budget March 2015

Summary

This was a forward-looking Budget, with much of the content based on the assumption that the current Government will pick up where it left off, after the General Election on 7 May 2015.

The sweeteners for voters include; a cut in duty on beer, cider and sprites, including whisky. The tax on road fuel is frozen, but the tax and NI charges for having the private use of a company car or van are set to increase above the levels which had already been predicted.

There are two changes to entrepreneurs' relief which take effect immediately, but those should not affect people who are selling significant stakes in their businesses.

For the future the Chancellor promised to increase the tax-free personal allowance up to £11,000 and introduce a new tax-free savings allowance of £1,000, but not until April 2016 at the earliest. Class 2 NIC is set to be combined with Class 4 NIC, which will be a simplification for the self-employed.

The promised abolition of annual tax returns to be replaced by an online tax account may sound attractive, but HMRC's track-record of mixing up figures submitted under RTI does not bode well for such an ambitious project.

We have organised the coverage below into future promises, which can only happen after the General Election, and immediate changes which take effect from 18 March 2015, or from April 2015.

This newsletter is a summary of the key tax points from the Budget, based on the documents released on 18 March 2015. It is possible that a different position will be shown by the draft legislation which is due to be published on 24 March 2015. We will keep you informed of any significant developments.

eNews - March 2015

March's Tax Tips & News

Welcome to our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.

If you need further assistance just let us know or you can send us a question for our Question and Answer Section.

We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.

Please contact us for advice.

We're here to help!                 

March 2015 eNews Contents

· Salary, dividend or pension contribution?

· RTI penalties

· Child benefit claw-back

· Company cars

· March Questions and Answers

· March Key Tax Dates