Pensions

[LOCUM]

Generally most people with a limited company pay a small amount of salary (around £9000) to minimise the tax.Is it true that you can only put aside only £9000 into pension.i.e amount eaqual to pensionable salary ??

[Jessica@WhiteFieldTax]

Generally most people with a limited company pay a small amount of salary (around £9000) to minimise the tax.Is it true that you can only put aside only £9000 into pension.i.e amount eaqual to pensionable salary ??

For personal contributions yes, however an employer contribution on your behalf generally has a higher cap, £40k on current rules.

For employer contributions there are issues around "reasonableness" of contribution - for a PSC I would say thats a red herring - you generate the income, hence its reasonable, but take advice from your accountant / IFA if unsure.

[MarillionFan]

For personal contributions yes, however an employer contribution on your behalf generally has a higher cap, £40k on current rules.

For employer contributions there are issues around "reasonableness" of contribution - for a PSC I would say thats a red herring - you generate the income, hence its reasonable, but take advice from your accountant / IFA if unsure.

You can exceed the 40k under carry back rules. If you have not used your full pensionable allowance in the last few years, this can be used to pay more into your pension in anyone year.

In the case of a contractor who draws a low salary to avoid tax, then this isn't as attractive, but having been a contractor for a number of years & now being a salaried perm I am in a position to use carry back rules and pay in 150k this year & claim back the tax.

[Contreras]

Generally most people with a limited company pay a small amount of salary (around £9000) to minimise the tax.Is it true that you can only put aside only £9000 into pension.i.e amount eaqual to pensionable salary ??

It's marginally more efficient to make personal contributions up to 100% salary, and then top up with company contributions (total £40k max) if you want contribute over 100% salary. This assumes the company has enough profit to put you in the high rate band if it were distributed as dividends.

[LOCUM]

I spoke to an IFA who said the max I can contribute is 9000(i.e equivalent to my pensionable salary) wether it is personal contribution or company contributions.I am a bit confused because I was of the opinion that I could save corporation tax by putting away £40000 into pensions.Looks like my plan for saving £8000(20% of 40000) is going down the drain.Any help and advice would be appreciated.And thanks for all the above replies.Much appreciated for your time.My company year end is nearing and I am anxious.

[Forbes Young]

I spoke to an IFA who said the max I can contribute is 9000(i.e equivalent to my pensionable salary) wether it is personal contribution or company contributions.I am a bit confused because I was of the opinion that I could save corporation tax by putting away £40000 into pensions.Looks like my plan for saving £8000(20% of 40000) is going down the drain.Any help and advice would be appreciated.And thanks for all the above replies.Much appreciated for your time.My company year end is nearing and I am anxious.

That's not the way I understood it with a company contribution in regard to a £9k limit. Best to talk this through with an expert IFA though - the one I use is Philip Lee of Hanson Wealth. email [email protected]

Graeme Bennett ACMA, MBA

[TheFaQQer]

I spoke to an IFA who said the max I can contribute is 9000(i.e equivalent to my pensionable salary) wether it is personal contribution or company contributions.I am a bit confused because I was of the opinion that I could save corporation tax by putting away £40000 into pensions.Looks like my plan for saving £8000(20% of 40000) is going down the drain.Any help and advice would be appreciated.And thanks for all the above replies.Much appreciated for your time.My company year end is nearing and I am anxious.

That's not what my IFA told me.

Last year, it was salary £5k (or whatever the NI threshold is) and £12k into a pension. And I could / should have put more in really.

[Contreras]

I spoke to an IFA who said the max I can contribute is 9000(i.e equivalent to my pensionable salary) wether it is personal contribution or company contributions.I am a bit confused because I was of the opinion that I could save corporation tax by putting away £40000 into pensions.Looks like my plan for saving £8000(20% of 40000) is going down the drain.Any help and advice would be appreciated.And thanks for all the above replies.Much appreciated for your time.My company year end is nearing and I am anxious.

The IFA you spoke to is wrong on that. You can contribute the full £40k from the company if you want to. If your salary is £9k then you could alternatively contribute £9k personally + £31k company contributions, which would be marginally more efficient wrt potential for taking further income (dividends) from the company.

A few words of caution however - there is a danger of the tax tail wagging the dog in that you're making decisions based on a perceived tax saving. Bear in mind that pension income will also be taxed so it's generally only worth doing (purely from a tax perspective) if it avoids higher rate tax, otherwise you might as well pay the basic rate tax on it now and invest the money without the restriction of a pension. Also it's often advised to max out on your ISA allowance before considering pension contribs. Also, worth checking whether £9k salary is optimum if you're at all concerned about tax efficiency.

Check with a tax specialist (your accountant perhaps?) who could advise better than an IFA.

[SueEllen]

I spoke to an IFA who said the max I can contribute is 9000(i.e equivalent to my pensionable salary) wether it is personal contribution or company contributions.I am a bit confused because I was of the opinion that I could save corporation tax by putting away £40000 into pensions.Looks like my plan for saving £8000(20% of 40000) is going down the drain.Any help and advice would be appreciated.And thanks for all the above replies.Much appreciated for your time.My company year end is nearing and I am anxious.

Completely wrong - you can find this out for yourself in the financial press.

In regards to IFAs, like accountants, not all of them are skilled in understanding how very small closed companies are structured. So you are better of asking an accountant who deals with contractors to recommend an IFA to you.

Also a lot of people who regularly post here have SIPPs however unless you are willing to spend time in reading up on and understanding pensions, you should take advise on whether to move other pensions into this pot or not.

[LOCUM]

Thanks for all your valuable suggestions.I went onto Hargreaves Landsown SIPP website where they clearly mention that a company contribution could be unto £40,000 per tax year.I am quite confident now about the cap.I really liked the idea of CONTRERAS i.e £9000 personal + 31,000 company contribution.I have decided to contact a specialist IFA.

Forbes Young- i can't find Phillip Lee on Hanson wealth website.Did you get the name wrong ? Does he specialise in SIPP ? How would you rate his services ?