Reducing corporation tax with pension contributions

In terms of corporation tax relief for the company all employer contributions to registered pension schemes can in principle attract tax relief without limit (ie they're not restricted by the employees annual allowance). However just as for any other expenses, pension contributions need to be incurred wholly and exclusively for the purposes of the trade to qualify for a tax deduction. The Revenue view on this is that if an employee is not connected with the employer then contributions would usually qualify for relief on the basis that the payments were for a business purpose. If the employee is connected to the employer (eg a director in the company) the position is less straightforward. Directors in small companies have significant flexibility as regards how to extract cash from a company, and making substantial pension contributions with only a low salary is a very tax efficient method of extraction. In order for the company to qualify for a tax deduction (as stated above) the contribution needs to be wholly and exclusively for the trade. So unless there's a non business purpose the pension contribution would be allowable. One of the ways that the Revenue can argue there is a non business purpose is where there is a substantial pension/salary package in relation to the services provided. HMRC have stated: '...One situation where all or part of a contribution may not have been paid wholly & 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...' If you can show that the contribution & salary package paid is in line with what would have been made for an unconnected employee in a similar situation it should qualify for tax relief. You would therefore need to raise an argument that any salary & pension contributions were incurred by the company wholly and exclusively for the purposes of the trade and there was no non-business motive. So in essence when looking at the tax deduction of the pension contribution in the company the key issue is the size of the remuneration package from the company when compared to the value of the work undertaken by that individual. As always it's a question of fact, but the level of salary and pension would need to be reviewed as part of a total remuneration package as well as the duties/services provided.