Originally posted by Lance
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Either way the government won't add anything over the the £40K. But if it is paid after tax has been paid (PAYE for example), the government just adds in the tax paid on the £40K.
e.g. For ease (ignoring NI, tax allowance etc) if you only earn £40K that year, you pay 20% tax on it you get £32k in your bank account. If you put it all into your pension, the government add the £8K tax paid back into your pension. This is because you will be taxed on the income from the pension when you begin to draw it (subject to personal tax allowances and an exception for the current initial 25% tax free portion).
if it's coming out of a company account, into your personal SIPP you don't get the extra from the government, but it is paid as a business expense, so you don't pay Corporation Tax on it, so effectively you are getting a 20% bonus.
So the government doesn't ever put in more money than you've earned / paid in tax, and they will get their share eventually anyway.
HTH
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