Noob SIPP question for company owners

[d000hg]

I've never had a pension and been looking into it a bit. I've got that if I personally put in £X, the government will kindly give me a chunk of money based on my personal income tax situation.

But in regular employment your employer might match your contribution up to some level. Is that totally separate on top of HMRC giving you your tax back? And as a Ltd company owner, should I follow this strategy or does it all even out since I'm employer and employee?

Is there a guide anywhere on SIPPs specifically for contractors/freelancers?

[pmeswani]

I've never had a pension and been looking into it a bit. I've got that if I personally put in £X, the government will kindly give me a chunk of money based on my personal income tax situation.

But in regular employment your employer might match your contribution up to some level. Is that totally separate on top of HMRC giving you your tax back? And as a Ltd company owner, should I follow this strategy or does it all even out since I'm employer and employee?

Is there a guide anywhere on SIPPs specifically for contractors/freelancers?

Even though you are the director of your own ltd company, for symantec purposes, your company is your employer, and not you. If that makes sense?

You can make employee based contributions to your SIPP via your personal bank account or can do it via PAYE from your employer. Either way, you get 20% tax relief added to your pension (up to 100% of your salary). Your employer can contribute an amount (not sure of the upper limit off hand) to your SIPP pension, but will not get anything added to your pension. The only benefit to your company is that it doesn't pay the Corp Tax on the amount paid into your pension as an employer.

However, it is dependant on your business having enough money to make the contributions. So if you only have, for example, £5k left in your business, of which £5k is for corp tax, you can't put £5k into your pension and hope not to pay any corp tax.

[d000hg]

OK so it seems I might as well make personal contributions as normal from salary/dividends/any other cash I want to use, and this money gets personal income tax credit?

And then the company can make contributions and the only notable thing is it doesn't get taxed as a dividend... but then no income tax credit.

So, in real life is there any benefit to paying into one's SIPP through the company account? Doesn't it make sense to issue a dividend for the amount the company would contribute, and then pay this as a personal contribution to attract income tax credit?

[pmeswani]

OK so it seems I might as well make personal contributions as normal from salary/dividends/any other cash I want to use, and this money gets personal income tax credit?

And then the company can make contributions and the only notable thing is it doesn't get taxed as a dividend... but then no income tax credit.

So, in real life is there any benefit to paying into one's SIPP through the company account? Doesn't it make sense to issue a dividend for the amount the company would contribute, and then pay this as a personal contribution to attract income tax credit?

The benefit will be a saving of 20% (or 21%, can't remember off hand) on the Corp Tax. So instead of taking a dividend, you can save the corp tax on making a contribution from the business. However, if you are a higher income tax payer, the obvious benefits are there in making personal contributions. (will get a 20% extra on year end).

[pmeswani]

OK so it seems I might as well make personal contributions as normal from salary/dividends/any other cash I want to use, and this money gets personal income tax credit?

And then the company can make contributions and the only notable thing is it doesn't get taxed as a dividend... but then no income tax credit.

So, in real life is there any benefit to paying into one's SIPP through the company account? Doesn't it make sense to issue a dividend for the amount the company would contribute, and then pay this as a personal contribution to attract income tax credit?

Sorry, just reread your post and missed the point of your question. AFAIK (and IANAA), you can only contribute up to 100% of your Salary, and not 100% of your total income (i.e. Salary & Dividends). I can't remember off hand if SIPP's allow you to make AVC's or not. (By making AVC's, you won't get the 20% or 40% contributions on top. So you would be better off putting additional contributions from your business in order to reduce your Corp Tax bil by 21%).

Only way around this is to increase your PAYE Salary, pay the tax on the income and then contribute the amount into the SIPP.

HMRC will be entitled to reclaim the tax above the 100% contributions. (I don't know if they have tried it or not though!).

[Fred Bloggs]

By paying salary, you are paying NIC's. By paying into the SIPP directly from the Ltd Co, you pay no tax on that money.

[pmeswani]

By paying salary, you are paying NIC's. By paying into the SIPP directly from the Ltd Co, you pay no tax on that money.

Not completely true on the Salary part. If your salary is £480 PCM, you don't pay any Income Tax or NIC's. However, if you decide to pay more than than that, fair enough.

But by paying NIC contributions, you are contributing to a full state pension (if it will still exist when you retire), so you will get 2 sets of pensions. One via the SIPP and the other via the state.

I'm going to start paying AVC NIC's from this year in order to ensure I get full State Pension for when I retire (assumption that it will still exist when I retire).

[Thejacka1]

Sorry, just reread your post and missed the point of your question. AFAIK (and IANAA), you can only contribute up to 100% of your Salary, and not 100% of your total income (i.e. Salary & Dividends). I can't remember off hand if SIPP's allow you to make AVC's or not. (By making AVC's, you won't get the 20% or 40% contributions on top. So you would be better off putting additional contributions from your business in order to reduce your Corp Tax bil by 21%).

Only way around this is to increase your PAYE Salary, pay the tax on the income and then contribute the amount into the SIPP.

HMRC will be entitled to reclaim the tax above the 100% contributions. (I don't know if they have tried it or not though!).

I don't think this is right.

I have put double my salary straight into a SIPP from the company account for 3 years, it was approved by my accountant and hasnt been picked up on by HMRC.

The Upper limit of pensions contribution is coming down to £50K a year from next year.

[pmeswani]

I don't think this is right.

I have put double my salary straight into a SIPP from the company account for 3 years, it was approved by my accountant and hasnt been picked up on by HMRC.

The Upper limit of pensions contribution is coming down to £50K a year from next year.

Have a look at How a personal pension works | Business Link.

If you earn £3,600 or more in any year, you can contribute an amount equal to 100 per cent of your earnings and still get income tax relief, as long as the amount is not more than the annual allowance, which is set every year by HMRC. In 2009-10 the annual allowance is £245,000. You can pay in more but you won't get tax relief on the excess amount.

How HMRC defines earnings is probably debatable, but if I were you, I would seek clarification. My understanding is that earnings, in this case, is related to Salary and not total income (which normally includes Dividends). If I am wrong, then fair enough.

What I have neglicted to mention in my previous posts is that company contributions can be higher than your salary, but they do not incur any tax relief from HMRC

[Fred Bloggs]

What I have neglicted to mention in my previous posts is that company contributions can be higher than your salary, but they do not incur any tax relief from HMRC

That is misleading. By paying direct from the Ltd Co into the SIPP, you do not get tax relief, no. You simply do not pay any tax on that money, zero, zip, nothing to pay. As a bonus, that money is also IR35 investigation proofed too.