Pensions for directors

Running a small to medium sized company takes time and effort. In the same way you would 'buy-in' expert legal and accountancy services, it is equally important to 'buy-in' your financial advice. At Pall Mall Financial Independence, we can guide you through the maze of pension options available. We will ensure that you have made the most effective use of your capital and time.

Listed below are some examples of pertinent questions to consider, with regard to planning a director's pension:

1. Do you realise that your company could obtain a refund of Corporation Tax paid within the past three years?

Should your trading expenses (which include any company contributions to a director's pension scheme) within any one year be such that they exceed your company’s combined trading profits, income and capital gains, a Trading Loss is said to exist. Trading losses can be 'carried back' and offset against assessable profits that have already been subject to Corporation Tax within the preceding three years. These levels of 'historic' assessable profits will, therefore, be lowered and the Inland Revenue will refund the overpaid tax directly to the company.

2. Would you like a deduction against your assessable profits that is in excess of 125% of the value of any capital purchases within one discrete accounting year?

Any capital purchases made by your company are deductible against your Corporation Tax, but only at a level of 25% within the year of purchase. Each year thereafter, a further 25% of the declining balance is deductible. As the allowance available each year is a percentage of the declining balance, a total deduction of 100% of the original outlay can never actually be achieved. The payment of an equivalent sum into the pension scheme would normally secure a 100% deduction against Corporation Tax. A loan could subsequently be taken from the pension scheme to enable the capital item to be purchased by the company. In addition, the company would still receive the year-one 'writing down allowance' of 25%.

3. What alternative ways of financing capital purchases are currently open to you?

An alternative to the purchasing of capital items out of profits or through a bank loan, is for a director's pension scheme to make a loan to the company. The relative appeal of financing capital purchases in this manner can often be found in the interaction between the tax treatment of capital purchases, loan interest and pension contributions. As a result, this method of financing capital purchases may have a more beneficial effect on your company’s cashflow.

4. Do you have ready access to ‘unsecured’ corporate borrowings regardless of market conditions?

A line of credit may be established which can be readily accessible to the company for business purposes. The amount of money available is not dependent upon the value or nature of any collateral owned by the company. Moreover, individual directors would not be required to make personal guarantees or put up personal assets as security. This alternative line of credit can be provided by a directors' pension scheme and the size of the loan would be solely dependant upon the size of the pension fund. If you would like further information, please feel free to call us on 0207 407 8787 or simply complete the form below:

Questions - Contact us by email or telephone on 0207 407 8787.