General Pension Questions

[ASB]

Anyway, I'm not at all confident in my reasoning, so please shoot me down if anyone has the time/patience to work through my logic.

The 3 things we have are:-

1) Contribution from company 1000 always yields 1000
2) Contribution from self if higher rate on dividends. 1000 yields 1038 + 30 quid rebate.
3) Contribution from self if higher rate salary. 1000 yields (possibly!) what I said above.

Now, the complication in 3 is whether this is as a result of being in or out of IR35.

This should make no difference. The deemed payment is made against the normal PAYE regime and the position regarding CT is in the gift of the inspector. [He may allow the amount of CT to be offset against the PAYE or it may be necessary to resubmit the accounts to get the CT back I believe].

The problem is that we are comparing appleas and pears to a certain extent.

The fact is that 810 was paid into the pension fund - as a result of this being the net amount received. This then gets bumped up to 1038 with BR relief.

Now, in the event of it being reclassified as salary it does get a bit divergent. My example was based on paying what was actually yielded by the money, I believe that to be a fair comparison.

But, as you say the actuality is that 810 was paid. So yes that gets some extra relief. But the fact remains that in order for this to happen you would have to dip into your savings to the tune of a couple of hundred quid - since the momey has not come from the salary payment. In order to make your comparison the source if the 1038 is NOT the 1000 (less deductions) paid as salary. It is the 100 paid as salry PLUS a top of other money since that did not yied the entire payment to the pension.

Does that explain why I believe the real gap to be much bigger? You have accidentally excluded the fact that in this scenario it is necessary to top up the payment with you own money from another source.

[minstrel]

1) Contribution from company 1000 always yields 1000
2) Contribution from self if higher rate on dividends. 1000 yields 1038 + 30 quid rebate.
3) Contribution from self if higher rate salary. 1000 yields (possibly!) what I said above.

Yes - I agree your calculations are correct if we were looking at making contributions via salary in the fist place, and that it does get more complex when we are looking at retrospective deemed salary calculations.

I've more than likely got this completely around my neck, but I *think* where the money came from to fund the contribution to the pension doesn't have a bearing when looking at the relative difference in tax positions.

All that matters is the fact that the Higher Rate threshold has been raised by £1038 and this affects the tax due on the deemed salary calculation for the additional £1000.

I'm probably reaching the limit of my knowledge now, but I think we've agreed that the position under a retrospective deemed salary calculation is going to be somewhere between -6.3% and -20.9%. Also, it would never be as large as a 20.9% loss as there is extra relief in their somewhere which hasn't been accounted for.

Again, it's all down to attitude to risk and how confident you are that you are outside IR35, but even with a worse case scenario of 20.9% loss I would still be prepared to take the risk and make the contributions personally rather than direct from company. If you are not confident that you are outside IR35 then making company contribution would be a good mitigation strategy.

[ASB]

I've more than likely got this completely around my neck, but I *think* where the money came from to fund the contribution to the pension doesn't have a bearing when looking at the relative difference in tax positions.

Here we go then:-

You pay 810 giving 1038 in the pension. The £1000 turns into £523 in your hand. Then you get relief back of 186.84 (I am assuming there is 38 quid of spare higher rate income from somewhere).

So the £1000 turns into 1038 in the pension and also -100 in cash (523 + 187 - 810)

The difference is thus about 14% - pretty much where we started from (or 20% if you do not have other higher reate income to get the releif from).

As you say it's persoanl choice as to the aceeptability of the risk (fwiw I had always made contributions from the company despite being outside IR35 since it was mainly pre 'A' day and I could not be bothered to change)

[Bumfluff]

Being yound (under 30 - just), I'm not doing ANYTHING yet until I am completely satisfied with this country's political status. At the moment, things are so unstable and heading towards dictatorship, that a pension may end up being worthless due to predatory taxation and economic collapse.

A friend of mine keeps his cash in cut diamonds.

A quote from 2006, seems to have been right with whats happening now, can you tell me the lottery numbers for next week ?

[glashIFA@Paramount]

Whatever an IFA charges, it's to much. The only useful thing they can do is tell you which are the cheapest providers, something you can find out yourself with a little bit of surfing.

Bit harsh this - i like to think there's a bit more to my job than that!