Pension contributions under the new rules that came in this year.

[nomadd]

OK, let me get this straight:

1. The maximum contribution I am allowed to put in my pension (SIPP) each year from my Company (i.e. these are not Personal contributions) is £50k?
2. In order to do that, you must have 'earnings' of £50k to match, and this can't include dividends?

So, in other words, if I want to increase the pension contribution my company currently makes - £20k - I'd need to up my salary (also currently £20k) to a higher figure, and incurr the tax and NI hit that would bring.

Is the above correct?

Only reason I ask is that I have some cash built up in the Company account, and wouldn't mind pushing it into my pension. But, of course, I don't want to do that if it means upping may salary such that I get mauled for additional tax and NI (versus simply dribbling the money out at £20k a time over many tax years.)

Advice welcome.

[Clare@InTouch]

My understanding is that company contributions are not linked to salary - that would only apply if you were making a personal contribution.

Talk to an IFA

[nomadd]

My understanding is that company contributions are not linked to salary - that would only apply if you were making a personal contribution.

Talk to an IFA

Cheers, Clare.

Unfortunately, an IFA would probably charge. And it's such a simple question, I'd thought one of the hundreds of folks on here would already know the answer - working on the assumption some of them must already have a pension!

[SarahL2012]

This link might help

Contribution Levels and Tax Relief - The Pensions Advisory Service (TPAS)

[nomadd]

Contribution Levels and Tax Relief - The Pensions Advisory Service (TPAS)

Yeah, went through that entire site, including the SIPP section: Self Invested Personal Pension (SIPP) Plans - The Pensions Advisory Service (TPAS)

Unfortunately, it doesn't deal with the standard contractor case of the pension contributions being made by your company.

I phoned the "help line" on the site and they were equally useless: the moment I mentioned that I was a Ltd and it was that company paying my contributions, they said "Sorry, we only deal with individuals; you'll have to speak to a tax consultant."

So, the question still remains, I guess.

[Contreras]

OK, let me get this straight:

1. The maximum contribution I am allowed to put in my pension (SIPP) each year from my Company (i.e. these are not Personal contributions) is £50k?
2. In order to do that, you must have 'earnings' of £50k to match, and this can't include dividends?

...

Is the above correct?

Nope.

Total contributions (company + personal) limited to £50k pa.

Personal contributions limited to 100% of salary (not dividends).

Only reason I ask is that I have some cash built up in the Company account, and wouldn't mind pushing it into my pension. But, of course, I don't want to do that if it means upping may salary such that I get mauled for additional tax and NI

Actually it's the only the addition NI you would get mauled for, basic rate tax would be reclaimed by the pension provider, and high rate tax reclaimed via your SA return.

Also it's possible to utilise unused allowance from previous 3 years (ie. £200k).

And it's an allowable expense against CT of course.

Advice welcome.

Take whatever an IFA says with a pinch of salt. Speak to a tax accountant.

Some useful bookmarked links here.

[nomadd]

Nope.

Total contributions (company + personal) limited to £50k pa.

Personal contributions limited to 100% of salary (not dividends).



Actually it's the only the addition NI you would get mauled for, basic rate tax would be reclaimed by the pension provider, and high rate tax reclaimed via your SA return.

Also it's possible to utilise unused allowance from previous 3 years (ie. £200k).

And it's an allowable expense against CT of course.


Take whatever an IFA says with a pinch of salt. Speak to a tax accountant.

Some useful bookmarked links here.

Thanks - but I already knew of this.

My basic question still remains: In order for my company to make a contribution of £X, do I also have to pay a salary of £X. This is the case for personal contributions (but I don't make any of these, so it isn't a factor.) I just wanted to clarify if it's the same case for Company contributions via my Ltd. Only reason I'm asking is I'm sure I saw another thread on here once where someone said the rules for Company contributions were different. I've spoken to my own accountant, and he states that you can't make a larger contribution - even via your company - than the amount of salary you pay in that year. By the looks of it, it sounds like he's right.

EDIT: Actually, having read peoples contributions to the following thread, it seems that your company can pay more than your salary in a given tax year, as long as your turnover in that year is roughly in-line with the total salary + pension sum: http://forums.contractoruk.com/accou...ml#post1543150

[SarahL2012]

another link

<snip>

Try this then.

The PAS helpline should have been able to advise. You just need to say that you are enquiring about whether you can make a company contribution for one of your employees that is in excess of their salary. Don't confuse them by throwing in the limited company contractor stuff as it is irrelevant.

[ASB]

It should be quite clear from this:-

Reduce Taxable Income through Pension Contributions

Also the links in the thread you found should help justify this.

[Contreras]

Thanks - but I already knew of this.

Sorry, I could have worded it clearer. In the context of your question the only limit is £50k pa (but this applies to total contributions, company + personal).

My basic question still remains: In order for my company to make a contribution of £X, do I also have to pay a salary of £X.

No.

I've spoken to my own accountant, and he states that you can't make a larger contribution - even via your company - than the amount of salary you pay in that year. By the looks of it, it sounds like he's right.

He's wrong to say that. Btw, my accountant also queried the same point (two years running as well).

EDIT: Actually, having read peoples contributions to the following thread, it seems that your company can pay more than your salary in a given tax year, as long as your turnover in that year is roughly in-line with the total salary + pension sum: http://forums.contractoruk.com/accou...ml#post1543150

That's the thread I linked to in the earlier reply. I think technically it's profit not turnover, and whether it's only the given year or retained profit is also debatable. BIM46035 is Hector's guidance on this. This issue is one you'd really need to seek professional qualified advice on I think, if you were thinking of dropping £200k into a SIPP and get a CT refund for example. An IFA may tell you it's fine of course.