• Visitors can check out the Forum FAQ by clicking this link. You have to register before you can post: click the REGISTER link above to proceed. To start viewing messages, select the forum that you want to visit from the selection below. View our Forum Privacy Policy.
  • Want to receive the latest contracting news and advice straight to your inbox? Sign up to the ContractorUK newsletter here. Every sign up will also be entered into a draw to WIN £100 Amazon vouchers!

Pensions - "reasonable cost"

Collapse
X
  •  
  • Filter
  • Time
  • Show
Clear All
new posts

    Pensions - "reasonable cost"

    Okay a serious question. I am considering making a contribution to my personal pension straight from the Ltd company. It is the first time I have done this and there is no difficulty, to be honest. However, searching this forum brings up the idea that the payment must be judged to be a "reasonable cost" to the business, as defined by HMRC. I would hate to be frowned upon by HMRC.

    The plan is to pay a big lump sum of 20k or so into the private pension, as well as taking dividends, perhaps up to and exceeding the HR threshold, all of which would leave plenty of profit in the company - enough to meet its liabilities and then some. Nothing is to be cut fine. However, would HMRC frown upon that, or coo like a dove ?

    I would also make an 8k personal contribution into the same pension, out of my 10k salary. It has been a good couple of years and the pension dearly needs juicing up. All of this would stay below the 40k contribution limit.


    And now for something completely different. Okay only slightly different. Anybody have experience of cheap tracker pensions ? ie. pensions invested in tracker funds ? Cavendish is about to launch one for 0.4% all in. That is much better value than my ancient Standard Life thing, and it might be time for the old switcheroo.

    Cavendish : Pensions

    #2
    Nothing wrong with what you propose. FYI, myco made contributions of £70k into my SIPP last year.
    Public Service Posting by the BBC - Bloggs Bulls**t Corp.
    Officially CUK certified - Thick as f**k.

    Comment


      #3
      On face value (not knowing your history in depth), the simple answer would be this is all reasonable and tax efficient

      When making contributions through your company there are no restrictions on the level of contributions made. Providing that you have the profits available... A total company contribution of £20,000 would not be seen as 'unreasonable' and would not be frowned upon.

      Pensions are always one to be discussed with an IFA in detail, in case you have any unused allowances from prior years that can also be considered, if you are thinking of bulking out your pension.

      An IFA can go through your existing pensions to check these are still right for you, plus give you advice on new tracker pensions and guide you going forwards.

      Hope this helps and happy hunting!

      Comment


        #4
        Originally posted by unixman View Post
        I would also make an 8k personal contribution into the same pension, out of my 10k salary.
        Why? Why not make an extra £8k from the company, reduce your CT bill, and not impacting your own financial situation?
        Best Forum Advisor 2014
        Work in the public sector? You can read my FAQ here
        Click here to get 15% off your first year's IPSE membership

        Comment


          #5
          Originally posted by TheFaQQer View Post
          Why? Why not make an extra £8k from the company, reduce your CT bill, and not impacting your own financial situation?
          The £8k personal contribution will extend the basic rate band by £10k, meaning that he can get an extra £9k (net) in dividends without paying tax.

          Comment


            #6
            Hi FaQQer An 8k payment will raise my HR tax threshold up by 10k, allowing another 10k of tax free dividends and netting a 2k tax saving. I don't want the thread to become a debate of personal tax savings vs. corporation tax savings, but you are right it is a complication. Either way there is a benefit.

            Comment


              #7
              YourCo can make any level of contribution, the issues are (a) overfunding in terms of life time allowance and (b) YourCo deductibility of contribution.

              It's in the context of (b) that an issue of reasonableness arises, but HMRCs concern is to tackle the most egregious of abuse - the reasonableness relates to total remuneration, I.e. Salary and pension mix - ignore dividends - and as you are responsible for generating the whole of YourCos income, inter alia any level of contribution you set is reasonable.

              So, in essence, no problem.

              As an aside, with the de-regulation in annuity requirements and ASP arrangements in budget 2014 pensions are becoming a lot more attractive; there is a lot of speculation that relief will be cut in budget 2015. Difficult to call this pre general election, but there's a lot to be said for considering accelerating contributions.

              Comment


                #8
                Thanks to all that was a question well answered. In summary, I am the only employee and responsible for all of the company's income. Therefore any pension contribution is reasonable (subject to the lifetime limit).

                Any takers for the question re Cavendish "tracker" pension ?

                Comment

                Working...
                X