Not everything that has come from the Chancellor in the past year has been bad news for high earners. Last April’s Budget 2009 extended the facility for employers to carry back trading losses for up to three years. This paves the way for tax savings through prudent use of pension contributions.
This offers you as a business owner the option to create a trading loss in your company by making a contribution to your pension, and then to carry back this loss over the two preceding years, gaining a potential tax repayment.
In the table below*, the company predicts profits of £80,000 in the current business year to end March 2010.
Your company can make a contribution to your pension of £190,000, thus turning the profit of £80,000 into a trading loss for the company of £110,000.
This trading loss can then be carried back and offset against profits of £60,000 last year, and £50,000 the year before. This not only recoups the corporation tax payments of £12,600 and £10,000 that were made in previous years, but avoids the payment of £16,800 in corporation tax that would have been payable on your company’s £80,000 profit this year.
That’s a gain for your company of £39,400!
*Source: Scottish Widows
