Employer Pension Contributions - 'wholly and exclusively' Test
In order for a limited company to claim Corporation Tax relief on any pension contributions it wishes to make into an employee's pension, HM Revenue & Customs will need to establish that any such contributions are made 'wholly and exclusively for the purposes of the trade, profession or vocation'.
This means your Local Inspector of Taxes will decide whether the total remuneration package, including salary, bonuses, commission, benefits in kind and any employer pension contributions are commercially reasonable for the work done by the individual employee concerned.
CONTROLLING DIRECTOR IS 'A DRIVING FORCE' IN THE BUSINESS:
If you are a controlling director, and are the driving force behind your company and you generate most or all of the business's income, the level of your remuneration package is a commercial decision and is therefore unlikely to fail the 'wholly and exclusively' test.
Your limited company would therefore be able to make a large contribution into your pension and claim the whole of the contribution against Corporation Tax.
The employer contribution is deducted from the firm's trading profits for Corporation Tax purposes and can therefore normally only be applied to the period of company accounts in which it is paid.
In order to claim Corporation Tax on the whole of the employer pension contribution, it must be kept within the company trading profits for the accounting period.