Company pension contributions

[chrisl]

A one man Ltd company paying, small salary and high dividends totaling £50k per annum, would you see any problem in paying the whole £50k to a company pension fund?

This would be done because the wife/husband would be paying for the contractors normal life style so they money earned through the Ltd company is not actually needed for anything.

Would it look strainge to HMRC paying 100% of earnings to the company pension?

[ASB]

Worth a search, there are varying opinions.

My view is that you are probably OK, but you need to be carefult - it has to be for the purposes of trade. One way of doing this may be by giving yourself a 50k salary and then doing a 50k salary sacrifice. However there are precedents which could make it not for the purposes of trade.

[Little'Old Me]

A one man Ltd company paying, small salary and high dividends totaling £50k per annum, would you see any problem in paying the whole £50k to a company pension fund?

This would be done because the wife/husband would be paying for the contractors normal life style so they money earned through the Ltd company is not actually needed for anything.

Would it look strainge to HMRC paying 100% of earnings to the company pension?

I presume the idea is not to pay the small salary and high dividends? The reason I ask the question is - dividends are paid out of taxable profit after payment of CT, whereas pensions (and small salary) are paid and deducted in order to establish the taxable profit. Ignoring whether you could do it or not, you would lose the benefit to the small salary (tax free I presume) if you paid the "profit" into the pension, as a company contribution (where your money is tied up and not immediately accessible.)

Its difficult to see the benefit of making payments into a pension pot, to forgo a salary & dividend..... Surely it is best to do all three in a workable way ?

[Grinder]

I understand there is no limit on pension contributions these days - used to be capped at a percentage of income. So theoretically you can pay it all out as pension and gain c-tax deduction and not sustain any income tax for it.

On retirement you can draw 25% as a cash lump sum and take income from the rest. This income is I think assessed as income for tax purposes, or the re-invested growth of the pension is taxed, I can't remember which.

I am not qualified to give advice - above is purely hearsay.

[Fred Bloggs]

Yes, I have calculated that in ~8 years time I will be able to pay in (what will be) my final 2 years turnover as a contractor into my SIPP and retire, as I will have a deferred pension payable that year and will have other savings to live off anyway for those 2 years.