Pension: Employer Contributions

[despot]

I've viewed most of the Pension threads and I'd appreciate any views on the following example.

As a director/employee of a limited company my salary (exclusign Dividends, etc) are £10k per year. That is the amount that I receive after NI and PAYE.

I decide to pay all of that into my SIPP pension. This part is relatively simple and clear as of April 2006, as anyone can contribute up to 100% of earnings into a pension capped at £215k (rising by £10k every year thereafter).

I cannot use dividends to boost my personal pension contribution above £10k.

All the easy bits out of the way:
Can my limited company contribute any additional amount into my SIPP just as long as the total amount is below £215k?

Thanks for your answers!!

[IR35 Avoider]

Yes.

In 2007/2008 you can contribute 225K-10K/78% = 212K as an employer contribution, without going over the limit.

[ASB]

Yes.

In 2007/2008 you can contribute 225K-10K/78% = 212K as an employer contribution, without going over the limit.

But whether or not it will get tax relief is open to some debate.

[despot]

Thanks ... my interpretation of the tax situation was slightly different:

1. my personal contribution will result in a claw back of tax @22%
I pay in £10,000 and the tax man tops this up so that the total in my pension = £12820.

2. the employer pension contribution of £100k (say) will be exempt from Corporation Tax at 20%. So the total in the pension = £100k + £12.82k
The saving from the company contribution is that NO corporation tax has been paid and hence a tax advantage of 20%.

[THEPUMA]

One other shimmy some are not aware of is that it is possible to pay double the £225K limit. The limit is not £225K per tax year but per basis year set by you.

So let's say you wanted to put £400K into a pension. You could set your basis year to end tomorrow and pay £225K tomorrow and then £225K the day after.

Not relevant for many but just in case.

[Bradley]

What about the £225k limit?

One other shimmy some are not aware of is that it is possible to pay double the £225K limit. The limit is not £225K per tax year but per basis year set by you.

So let's say you wanted to put £400K into a pension. You could set your basis year to end tomorrow and pay £225K tomorrow and then £225K the day after.

Not relevant for many but just in case.

Thought that if you contributed more than £225k per employee per tax year then that employee would end up paying 40% tax on the excess - or am I wrong?

[THEPUMA]

Thought that if you contributed more than £225k per employee per tax year then that employee would end up paying 40% tax on the excess - or am I wrong?

No that's the common misperception.

[Bradley]

Thank you

No that's the common misperception.

Thanks - not that I'll ever have £450k to invest of course!

[weemster]

Pension

My accountant strongly advises me not to invest in a pension. I am not a higher rate tax payer,no kids,girlfriend has her own occupational pension,we have seperate life cover in place and when I look at the figures regarding making contributions through the company or personally - they don't stack up from a tax effeciency point of view. I am trying to understand why someone in my position would consider a pension over other types of investment and this is before I even get talking about how inflexible they can be - any views most welcome.

[glashIFA@Paramount]

My accountant strongly advises me not to invest in a pension. I am not a higher rate tax payer,no kids,girlfriend has her own occupational pension,we have seperate life cover in place and when I look at the figures regarding making contributions through the company or personally - they don't stack up from a tax effeciency point of view. I am trying to understand why someone in my position would consider a pension over other types of investment and this is before I even get talking about how inflexible they can be - any views most welcome.

Psn contribs must stack up from a tax efficiency point of view, either Corp Tax relief or Income Tax relief depending on if an emp'er or emp'ee contrib. Fair enough to say they might not stack up as much as a higher rate taxpayer but tax relief is tax relief.

Whether or not you think a psn is preferable to other types of investment is of course a personal thing, depends what you're looking for the investment to do. As regards flexibility, much more so following the rule changes last April. I've said before on other threads, ideal situation as far as I'm concerned is to have a foot in both camps. Psns are just an investment after all, albeit with tax breaks, so there's no reason why they shouldn't form part of your overall investment strategy.