Question:
My Limited Company, of which I am a Director, has just had a very good year and it looks like we will be in profit to the tune of £450,000 for our financial year end 31 March 2012. This will result in a significant Corporation Tax bill. Is there any way that this can be reduced legitimately?
Answer:
There are a number of ways that the profits of a company can be reduced and, therefore, the level of Corporation Tax payable but one method that can best be explained by an example is the use of company contributions to personal pensions.
In this particular example;
Company contributions made into each of the director’s personal pensions of £50,000 will reduce the profit of the company by £150,000 resulting in a Corporation Tax saving of £41,250 (assuming a Corporation Tax rate of 27.5%). It is important to note that any contributions will need to be paid by 31 March 2012 in order to qualify for the corporation tax deduction.
In addition the directors will now have an additional £50,000 in their pensions and, as these have been paid directly, not as salary, the directors will have paid no Income Tax or National Insurance contributions on monies used to fund the pension contributions.
The director who has already made a contribution for the current tax year would need to utilise the carry forward provisions available.
Simple but effective. There are of course other solutions to help you manage your corporation tax liabilities and we would be pleased to discuss them with you. If you would like to discuss this or other methods of saving tax, please feel free to contact: Ward Williams Financial Services Ltd (Cliff Pocock) on 01932 830664 or email cliff@wardwilliams.co.uk
My Limited Company, of which I am a Director, has just had a very good year and it looks like we will be in profit to the tune of £450,000 for our financial year end 31 March 2012. This will result in a significant Corporation Tax bill. Is there any way that this can be reduced legitimately?
Answer:
There are a number of ways that the profits of a company can be reduced and, therefore, the level of Corporation Tax payable but one method that can best be explained by an example is the use of company contributions to personal pensions.
In this particular example;
· There are three directors aged 55;
· The company has a healthy level of cash, and has calculated that it has the ability to spend in excess of £200,000 without disturbing its cash flow;
· All the directors have had pensions in place over the last four years, but only one has made a contribution in the current year (£10,000).
Company contributions made into each of the director’s personal pensions of £50,000 will reduce the profit of the company by £150,000 resulting in a Corporation Tax saving of £41,250 (assuming a Corporation Tax rate of 27.5%). It is important to note that any contributions will need to be paid by 31 March 2012 in order to qualify for the corporation tax deduction.
In addition the directors will now have an additional £50,000 in their pensions and, as these have been paid directly, not as salary, the directors will have paid no Income Tax or National Insurance contributions on monies used to fund the pension contributions.
The director who has already made a contribution for the current tax year would need to utilise the carry forward provisions available.
Simple but effective. There are of course other solutions to help you manage your corporation tax liabilities and we would be pleased to discuss them with you. If you would like to discuss this or other methods of saving tax, please feel free to contact: Ward Williams Financial Services Ltd (Cliff Pocock) on 01932 830664 or email cliff@wardwilliams.co.uk
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