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View Full Version : Should I be paying into my personal stakeholder pension from my company account?



Lewis
14th June 2007, 09:10
At the moment I pay into my pension from my dividend income, e.g. if I want to put £100 profit from my company into my personal pension I must pay 20% corporation tax which gives me £80 as a dividend which I pay into my pension. I get tax relief on the pension payment at 22.5% so I end up with £102.5 in my pension (so I have gained £2.50). If I am a lower rate tax payer that is it.

However, if I am a higher rate tax payer I must pay an additional 22.5% tax on my £80 dividend so I can only now put £65 into the pension, giving me only £83 after relief.

So, if pension payments made from the company are except from corporation tax then it would seem that is a much better way of doing it.

Advice appreciated as always.

[EDIT - Come on Lewis do a search first! :suicide: http://forums.contractoruk.com/thread15453-employee+employer.html]

glashIFA@Paramount
14th June 2007, 11:04
At the moment I pay into my pension from my dividend income, e.g. if I want to put £100 profit from my company into my personal pension I must pay 20% corporation tax which gives me £80 as a dividend which I pay into my pension. I get tax relief on the pension payment at 22.5% so I end up with £102.5 in my pension (so I have gained £2.50). If I am a lower rate tax payer that is it.

However, if I am a higher rate tax payer I must pay an additional 22.5% tax on my £80 dividend so I can only now put £65 into the pension, giving me only £83 after relief.

So, if pension payments made from the company are except from corporation tax then it would seem that is a much better way of doing it.

Advice appreciated as always.

[EDIT - Come on Lewis do a search first! :suicide: http://forums.contractoruk.com/thread15453-employee+employer.html]

Yeah, this is always a tough one and people have their own views, as expressed on previous threads.

As I've said before i usually prefer the company contribution. It's a lot more straightforward and the difference, if it is in favour of the personal contrib is usually very marginal - in other words a lot of faffing about for little if any gain.

Don't forget that if you are a higher rate taxpayer as per your scenario above, you do have to pay extra tax but you also get higher rate relief on the pension contribution not basic rate (22%) as your assumption states.

Lewis
14th June 2007, 11:13
Yeah, this is always a tough one and people have their own views, as expressed on previous threads.

As I've said before i usually prefer the company contribution. It's a lot more straightforward and the difference, if it is in favour of the personal contrib is usually very marginal - in other words a lot of faffing about for little if any gain.

Don't forget that if you are a higher rate taxpayer as per your scenario above, you do have to pay extra tax but you also get higher rate relief on the pension contribution not basic rate (22%) as your assumption states.

yes I realised the error after reading the other thread but thanks for your reply anyway. I'm the reverse as my stakeholder is all setup and direct debits going from my personal account so it's actually hassle to switch to company payments for me. Glad to know that there is not a massive difference either way though. Think I'll just leave it as it is.

glashIFA@Paramount
14th June 2007, 11:18
yes I realised the error after reading the other thread but thanks for your reply anyway. I'm the reverse as my stakeholder is all setup and direct debits going from my personal account so it's actually hassle to switch to company payments for me. Glad to know that there is not a massive difference either way though. Think I'll just leave it as it is.

If it's not broke don't fix it. It's actually very easy to change fromm employee to employer contribs. Maybe next time you decide to review things would be appropriate. Glad it was of some use.