Director of Ltd company contributing pension

[Tdog1975]

Hi all

I'm the director of my limited company, and only employee.

If the company makes £50,000.

I pay myself £10,000 in wages.

Can the company make a £40,000 contribution to my SIPP?

Or would HMRC not be too impressed?

[WordIsBond]

No, they would not be impressed. They would say that you had £1576 in salaries that incurred NI and that you have to retain enough funds to pay that before making these pension contributions.

I wouldn't be impressed, either.

I'd be more impressed if you paid yourself £8424 in salary for the year, thus not incurring any NI liabilities. Go ahead and make your £40K pension contribution, if you want. Pay Corporation Tax on the remaining £1576, and disburse what is left as a dividend, tax free.

Or, pay the £8424 in salary, and pay £31606 into your pension, leaving £9970 profit. Pay 19% Corporation Tax, leaving you £8076. Disburse that as a dividend, which will be tax free to you within your personal allowance and your dividend allowance. (These numbers will change next year). This is probably the most tax-efficient way to go, and has the added benefit that some of those funds are available to you, rather than locked up in a pension. It does mean you pay some corporation tax, but at 19% that is probably lower than you'll pay to get the funds out of your pension someday, so is likely well worth it. If you don't need that dividend money, put it away in an ISA.

I'd be even more impressed if you allowed some money for accountancy fees in this plan and had your accountant check these numbers with your specific situation.

[cojak]

Thank you WiB.

That reply is so complete that I’m closing this thread.