SSAS – Benefits for Companies
SIPP has been in vogue for the last few years and its older brother SSAS(Small Self Administered Scheme) has been written off of late. Far from it being dead, the SSAS is not only alive and well but enjoying a bit of a comeback. This is especially true for company directors who, rather than paying corporation tax, would prefer to extract as much money as possible from their business for their own benefit.
The business can make contributions into the scheme on behalf of the owners. They can also have the added advantage of SSAS trustee/administration fees being paid by the business and so constituting a business expense, which little brother SIPP cannot. This will help to reduce National Insurance for the member and business but further help to reduce the corporation tax bill.
Loanbacks
This is an old phrase we heard a lot of in the past. The dust has settled on the Finance Act 2009 and we have the new rules that effect contributions.
This is especially true for those that have £150,000 per annum of relevant income. With the Bank of England base rate at 0.5% and rates of return so low on trustee bank accounts, it is worth looking at alternatives for extracting income from a business tax efficiently and enhancing the scheme member’s returns.
One way of achieving this is for the pension scheme to loan the business money. Since Pension Simplification loanbacks are very different. Loans from a SSAS can be:
• No more than 50% of net pension funds
• Maximum term is five years
• Capital and interest repayments – regular & equal instalments.
• To a sponsoring employer or third party
• Security required is a first charge
So what does this mean for SSAS with cash in trustee banks-Well a business owner or employee can lend their pension funds to the business and set a return that is significantly higher than they could generate in a trustee bank accountSecondly, the repayment of the loan by the business would be a deductible business expense, reducing the companies’ corporation tax bill.
Another way of looking at it may be it may be that the business owners want to secure low cost borrowing. If this is the case then the minimum interest rate currently repayable is only 1.5%!At a time when business loans are hard to come by this may be a cost effective alternative.
This is one of the major advantages SSASs have over SIPPs, as a SIPP is only allowed to loan money to an unconnected party.
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