Setting up a SIPP: a few tax-related questions.

[TCL]

I'm looking into setting up a SIPP, and I've figured out from previous threads here, and other sources, that its better tax-wise if my ltdco pays gross contributions, rather than me paying personally from my taxed income, but here's my question:

Are pension contributions paid by an employer (my ltdco in this case) deductable from a Corp Tax point of view? Can I just set up a direct debit from the company bank account for , say £1,000 monthly, pay it to the SIPP and thats the end of it (till I retire) Obviously it shows up on the books as money going out of the company, but does Hector care, specifically when he is wearing his corportation tax hat? Or how about employers NI? Is that relevant here? Would the contributions simply be viewed as legitimate business expense?

Presumably I have to record the fact in the company minutes that due my outstanding performance..... blah blah blah.... I am being rewarded with a fully expensed company pension of my choosing? Then I guess that raises the sub-question of making my own personal contributions on top of the company ones, which is something I may do also.

I realise these may be questions better suited to my accountant, but TBH I can do without his doom+gloom attitude and his average 6 week response times, and I'd rather seek more than one point of view if possible.

TIA

[pmeswani]

I'm looking into setting up a SIPP, and I've figured out from previous threads here, and other sources, that its better tax-wise if my ltdco pays gross contributions, rather than me paying personally from my taxed income, but here's my question:

Are pension contributions paid by an employer (my ltdco in this case) deductable from a Corp Tax point of view? Can I just set up a direct debit from the company bank account for , say £1,000 monthly, pay it to the SIPP and thats the end of it (till I retire) Obviously it shows up on the books as money going out of the company, but does Hector care, specifically when he is wearing his corportation tax hat? Or how about employers NI? Is that relevant here? Would the contributions simply be viewed as legitimate business expense?

Presumably I have to record the fact in the company minutes that due my outstanding performance..... blah blah blah.... I am being rewarded with a fully expensed company pension of my choosing? Then I guess that raises the sub-question of making my own personal contributions on top of the company ones, which is something I may do also.

I realise these may be questions better suited to my accountant, but TBH I can do without his doom+gloom attitude and his average 6 week response times, and I'd rather seek more than one point of view if possible.

TIA

Paying from your company account into your SIPP will help reduce the Corp Tax bill. You won't get a 21% refund when you do your Tax Returns, just end up paying less. You will need to get documentary proof from the SIPP provider that you have contributed company money into your SIPP. This will be needed when it comes to doing your Annual returns.

How you go about contributing to your SIPP from the company's point of view is a matter between yourself and the SIPP provider. You could send them a cheque every month (if they support it), by Direct Debit or by one off payments from time to time.

Regarding the question about recording it in your minutes... that's between you and the other directors (if applicable) to decide. I haven't done any annual minutes for the business yet as I am in my first year, so I can't formally answer that question from experience.

If you have read any of my comments regarding the SIPPs from previous threads, I have always recommended one should also make personal contributions in addition to Corporate contributions. This isn't for the benefit of Hector, but for you to boost your pension pot.

Some Accountants would suggest that you make the payments from your Dividend contributions rather than from your PAYE contributions... but you may want to speak to your Accountant to work out what is best for you.

On a different point, if you are not happy with your Accountant, isn't it about time you found someone else to be your Accountant?

[TCL]

Thanks for reply, very helpful.

I'm not looking for a CT refund, just need to know that if my company pays out £12k in a year in pension contributions, thats £12k that is not liable for CT - that is the case, if I am understanding you correctly?

What is the reasoning for paying additional personal contributions?

I mean, if my company pays £1000 gross each month into the pot, what is the benefit of a personal contribution from me of an additional £500? I understand the tax relief I get on this, making it roughly £700 (£500 + 40%), but why is that better than me reducing my gross salary by £700, paying less personal PAYE tax and NI (both types) contributions, and then taking that £700 from the company and paying that straight to the SIPP?

[pmeswani]

Thanks for reply, very helpful.

I'm not looking for a CT refund, just need to know that if my company pays out £12k in a year in pension contributions, thats £12k that is not liable for CT - that is the case, if I am understanding you correctly?

What is the reasoning for paying additional personal contributions?

I mean, if my company pays £1000 gross each month into the pot, what is the benefit of a personal contribution from me of an additional £500? I understand the tax relief I get on this, making it roughly £700 (£500 + 40%), but why is that better than me reducing my gross salary by £700, paying less personal PAYE tax and NI (both types) contributions, and then taking that £700 from the company and paying that straight to the SIPP?

The real benefit is when you are paying 40% tax on your PAYE income. If you are paying a salary of £5K or less, then it can be argued that there is little tax incentive. However, I pay myself £5k and have found that I am getting 20% added to my personal contributions to my pension.

If you are a 40% tax payer, then what you put into your SIPP will get a 20% immediate Tax relief. You will get the other 20% added when you do your Personal Tax Returns.

The main benefit is beyond immediate taxation issues. The more you contribute (whether it is company funded and / or personal funded) the better your retirement pot will be. This will allow you to take a larger tax free lump sum upon retirement. Also, the more you put in, the more investment choices you have. I advocate personal contributions as there are tax incentives available. But you may want to speak to an Accountant to get a better picture.

If you are going down the route of setting up your SIPP with Hargreaves Lansdown, you may find that in the new Financial Tax Year, you will be able to, based on the information I have read, opt out of SERPS (which cannot be backdated). This will give you more funding into your SIPP. This can, I believe, be only done if the contributions are made from your PAYE income.

I'm now questioning what I have put on my application form when I set up my SIPP. I can't remember what Salary I put down, so I am unsure if I am really eligible for any Tax Relief. I may have to look at putting more money aside in case I have to pay it back to the Tax Man.

[pmeswani]

Thanks for reply, very helpful.

I'm not looking for a CT refund, just need to know that if my company pays out £12k in a year in pension contributions, thats £12k that is not liable for CT - that is the case, if I am understanding you correctly?

The only reason why I mentioned the refund bit is that a lot of people get confused by that bit.

I believe the contribution from your company is not liable for CT.

[Alan @ BroomeAffinity]

http://forums.contractoruk.com/accou...hlight=pension

Have a look here. This tells yuo how the reliefs are given etc.

And yes, if your accountants is that bad, why are you still with him? You'll only get good service if you don't put up with bad.