Can my company deduct my own salary and pension contributions?

• Corporation Tax Act 2009, section 46: trading profits are calculated under generally accepted accounting practice, subject to adjustments required or authorised by law. Section 54: no deduction for expenses not incurred wholly and exclusively for the purposes of the trade; where an expense has more than one purpose, an identifiable part or proportion incurred wholly and exclusively for the trade can still be deducted.

• Corporation Tax Act 2009, section 1305: no deduction is allowed for a dividend or other distribution, unless the Corporation Tax Acts expressly authorise one.

• HMRC's Business Income Manual (BIM37007): the rule is only satisfied if the taxpayer's sole purpose for incurring the expense is for the trade. If a non-trade purpose is identified, the expenditure is not allowable.

• BIM47105: that an employee or director is a close relative or friend of the controlling director does not mean their salary is automatically disallowed. If there is no non-trade purpose to the remuneration and the quantum is not determined by the relationship, it does not fail the wholly and exclusively test. Where there is equal pay for equal value, the amount is fully allowable. Where there is a non-trade purpose, or the quantum is determined by the relationship, it is not allowable.

• BIM47106: controlling directors are often the driving force behind a company. Where the controlling director is also the person whose work generates the company's income, the level of the remuneration package is a commercial decision, and a non-trade purpose is unlikely. Remuneration does not include entitlement to dividends arising in the capacity of shareholder.

SourcesThe law·HMRC

• Corporation Tax Act 2009, section 1288: the rule applies if an amount is charged for employees' remuneration in a company's accounts for a period, it would otherwise be deductible, and the remuneration is not paid before the end of the period of 9 months immediately following the end of the period of account. If it is paid after that, the deduction is allowed for the period of account in which it is paid. If it is not paid, no deduction is allowed.

• Section 1289: an amount charged includes a provision made with a view to its becoming employees' remuneration. "Employee" includes an office-holder, and "remuneration" means an amount which is or is treated as earnings under Parts 2 to 7 of the Income Tax (Earnings and Pensions) Act 2003. Remuneration is paid when it is treated as received under section 18 or 19 of that Act.

• HMRC's Employment Status Manual (ESM2503): a director of a company is an office holder. BIM47135 puts the remuneration of office-holders within the nine-month rule.

SourcesThe law·HMRC

• Finance Act 2004, section 196: an employer's contributions under a registered pension scheme are treated as not being payments of a capital nature. If they are allowed to be deducted, they are deductible for the period of account in which they are paid. The section is subject to the spreading rules in sections 197 and 198.

• BIM46010: employers' contributions to registered pension schemes are allowed as a deduction for the period of account in which they are paid, and for no other period. BIM46001: this guidance applies to contributions made on or after 6 April 2006.

• Corporation Tax Act 2009, section 1290(4)(b): the nine-month rule for employee benefit contributions does not apply to contributions under a registered pension scheme. Section 1295, which assumes unpaid contributions stay unpaid when profits are calculated early, is part of the same code, so it is not the rule for these contributions either.

• BIM46030: the same rules apply as for any other expense, apart from the capital question and timing. The contribution must be paid wholly and exclusively for the trade. As part of the cost of employing staff, contributions are likely to be allowable, and it is relatively rare to have to consider a non-trade purpose.

SourcesThe law·HMRC

BIM46035: a pension contribution for a director or employee is allowable unless there is a non-trade purpose. Where it is part of a remuneration package paid wholly and exclusively for the trade, it is allowable. Where the package is excessive for the value of the work, consider whether the whole package, not only the contribution, was paid wholly and exclusively for the trade. HMRC accepts contributions where the package for a director of a close company is comparable with that paid to unconnected employees performing duties of similar value. Where there are no genuinely comparable employees, it follows the general guidance at BIM47105. Where only a definite part or proportion is not wholly and exclusively for the trade, only that part is disallowed.

SourcesHMRC