101. KIONI(INCOME TAX)

This scenario relates to one requirement.
You should assume that today’s date is 1 March 2022.
Kioni is the managing director of, and 100% shareholder in, Nikio Ltd. Nikio Ltd has no other
employees.
For the year ending 5 April 2022, Nikio Ltd’s tax adjusted trading profit, after taking account
of director’s remuneration and employer’s class 1 national insurance contributions (NIC), is
forecast to be £100,000.
Nikio Ltd will pay Kioni gross director’s remuneration of £47,500 and dividends of £68,000
for the tax year 2021/22. Kioni does not have any other income.
Based on these figures, the tax and NIC for Kioni and Nikio Ltd for the year ending 5 April
2022 will be:
Kioni
Income tax £30,982
Employee class 1 NIC £4,552
Nikio Ltd
Employer class 1 NIC £5,335
Corporation tax £19,000
Kioni is concerned that she has not been saving for her retirement, so she is therefore
planning to make a gross pension contribution of £20,000 before 5 April 2022 (during the tax
year 2021/22). However, Kioni is unsure whether the pension contribution should be made
by Nikio Ltd or made personally by her:
1 If the pension contribution is made by Nikio Ltd, the company will make a pension
contribution of £20,000 into a company pension scheme on Kioni’s behalf.
2 If the pension contribution is made by Kioni personally, Nikio Ltd will pay her additional
director’s remuneration of £20,000 for the tax year 2021/22, and Kioni will then make
a personal pension contribution of £20,000 (gross).

Required:
For each of the two alternative ways of Kioni making a pension contribution of £20,000
(company pension scheme or additional director’s remuneration and then Kioni personally
making a personal pension contribution), calculate revised figures for each of the four tax
and NIC figures already calculated for the year ending 5 April 2022. ?

ANS
PERSONAL PENSION CONTRIBUTION
Nikio Ltd’s revised employer’s class 1 NICs will be £8,095 (5,335 + 2,760 (20,000 at
13.8%)).
4 Nikio Ltd’s revised corporation tax liability will be £14,676 ((100,000 – 20,000 – 2,760)
at 19%).

Good day,Pls i don’t understand why 20000 was removed from the tax adjusted trading profit when calculating the new corporation tax figure under the oersonal pension scheme option.I’ll appreciate if you can explain better.