Personal pension contributions to SIPP - double tax relief

[cb4fwh]

Hi.

Back in 2016, I started contributing £300 per month to a SIPP, and received tax relief at source so £375 per month into my SIPP. I also declared these payments on my personal tax return. At the time, I also shared documentation showing that these were personal pension contributions.

As these were personal contributions for myself personally rather than my limited company, these should have been shown as dividends in my accounts - they weren't.

I moved accountants last year as I was with one of the bigger contractor accountants and the service had deteriorated to the point that I was waiting weeks for answers to any queries that I had, which was when my new accountant called out this discrepancy.

My previous accountant is now looking at correcting this error, but what I am trying to understand is any additional liabilities so I can plan ahead.

I'm assuming £3600 of pension contributions per year will result in an additional corporation tax liability of £684 (at 19%).

Am I also right in assuming an additional personal tax liability as these pension payments should have been processed as dividends?

Thanks :-)

[hobnob]

If you were claiming tax relief at source, that implies that the pension contributions were (effectively) taken out of your net salary. See:
Tax on your private pension contributions: Tax relief - GOV.UK (www.gov.uk)

I.e. if you've already paid 20% income tax on £375/month (reducing it to £300/month), HMRC will give that £75 back and add it to your pension contribution. You will then pay income tax later instead (when you take money out of the pension).

So, when you say "these should have been shown as dividends", I don't think that's true. You might also have been taking dividends, but that's a separate issue.

The whole thing sounds very tangled up, and I think it will be difficult to predict the outcome until your new accountant has been through it. However, you need to be clear about the distinction between your personal accounts and the company accounts. In particular, which bank account actually made contributions into the SIPP? If it was the company account, how was this expense recorded?