How much do you pay into a pension?

[DimPrawn]

Moorfield,

I think the operative word there is "You". I therefore assume that the HMRC document is referring to personal contributions. It says flip all about company contributions.

Dimprawn,

I'm not really considering annuities. I have a SIPP. This allows me just to put the pension into drawdown......the first part of which allows me to take 25% tax free.

Can you draw 100% of the SIPP pot at retirement and avoid buying an annuity or are there rules that say, by 70 yrs old you must buy an annuity?

[moorfield]

I don't think you have to take the annuity now until you reach 75, and I am planning to have all my money out of my pension by then anyway, starting with the 25% tax free at 55 which I can take whether I'm working or not.

[Hiram King Of Tyre]

I think you may still have to buy an annuity at 70 but for me that's not an issue. I have 28 years in a final salary scheme that I will rely on post 70. I am running a SIPP really to suppliment that until I too old to need any more...

The other point worthy of note is that (I believe) a pension is willable outside of IHT

[IR35 Avoider]

My accountant suggests that company contributions should not exceed salary. This is a bit of a limitation for me. They suggest that any more may be subject to CT if it is deemed to not be "wholly and exclusively for the business.

I've answered this question a few times in this forum. I'll assume the over 200K limit is not relevant.

1. You personally are limited to 100% of salary.
2. Your company can contribute as much as it likes.
3. Lots of accountants are confused, because after the new rules came in HMRC tried to scare everyone off paying big contributions by threatening to disallow them as a deduction for Corporation tax. They have since backed down. The bottom line now is that if your company is paying contributions for yourself out of fees you personally generated for your company, that cannot possibly be considered excessive remuneration. (What could be disallowed is if for example you paid into wifes pension, and the total of her salary and pension contributions were more than the value of her work to the company.)

If you search out previous threads on this subject you will find various people have posted links that confirm what I say.

I pay 5K salary and the rest of my fees (up to 95% turnover) as company contributions.

The whole point of IR35 was that HMRC wanted us to turn all our employment income into remuneration (pension and salary both count as remuneration in the IR35 calculation) so it would be incredibly hypocritical if they suddenly said that level of remuneration was excessive.

If HMRC do ever ask why I contribute a lot to a pension, I would be very careful with the wording of my answer, so that they don't deduce a "non-trade purpose" for the level of contributions. (If you say "because I'll eventually get my money with less tax deducted" that could be a non-trade purpose. If you say "because it makes no fiancial difference to the company how remuneration is split, and this split maximise employee happiness within a given total remuneration" than I would say that is a legitimate "trade purpose." Actually I would get advice from PCG tax specialists about what to say. I really don't expect to be asked though, I think what I'm doing is now acceptable to HMRC.)

[Hiram King Of Tyre]

Thanks avoider. That's exactly my interpretation. Do you have anything to substatiate point 3? That's the bit my accountant has difficulty with. (I will have a look too).

I'd like to know how you manage on £5k a year though? I assume you have other income. Incidently, by doing what you do, I assume that IR35 isn't much of an issue?

[IR35 Avoider]

This thread has a fuller discusion.

http://forums.contractoruk.com/accou...hlight=pension

In it, somebody posted this link, which might help.

http://www.moneymarketing.co.uk/cgi-...id=136528&d=11

I have non-pension savings, paid for house and a working wife to tide me over. (12 years until I can get at the pension money, even without wife I could probably pay all my household expenses until then from savings, though I would have to run them down to almost zero.)

[Hiram King Of Tyre]

I'm 48 now so will be able to get some at 50....


Thanks for your help

[ASB]

I pay 5K salary and the rest of my fees (up to 95% turnover) as company contributions.

Could you not improve your "safety" in terms of the level of contributions by:-

- Paying yourself a "nominal" salary of 95%.
- doing a salary sacrifice to then change the majorirty of that into pension contributions

[THEPUMA]

I've answered this question a few times in this forum. I'll assume the over 200K limit is not relevant.

1. You personally are limited to 100% of salary.
2. Your company can contribute as much as it likes.
3. Lots of accountants are confused, because after the new rules came in HMRC tried to scare everyone off paying big contributions by threatening to disallow them as a deduction for Corporation tax. They have since backed down. The bottom line now is that if your company is paying contributions for yourself out of fees you personally generated for your company, that cannot possibly be considered excessive remuneration. (What could be disallowed is if for example you paid into wifes pension, and the total of her salary and pension contributions were more than the value of her work to the company.)

If you search out previous threads on this subject you will find various people have posted links that confirm what I say.

I pay 5K salary and the rest of my fees (up to 95% turnover) as company contributions.

The whole point of IR35 was that HMRC wanted us to turn all our employment income into remuneration (pension and salary both count as remuneration in the IR35 calculation) so it would be incredibly hypocritical if they suddenly said that level of remuneration was excessive.

If HMRC do ever ask why I contribute a lot to a pension, I would be very careful with the wording of my answer, so that they don't deduce a "non-trade purpose" for the level of contributions. (If you say "because I'll eventually get my money with less tax deducted" that could be a non-trade purpose. If you say "because it makes no fiancial difference to the company how remuneration is split, and this split maximise employee happiness within a given total remuneration" than I would say that is a legitimate "trade purpose." Actually I would get advice from PCG tax specialists about what to say. I really don't expect to be asked though, I think what I'm doing is now acceptable to HMRC.)

I wouldn't say that paying contributions out of fees "cannot possibly" be considered excessive. I would have thought that, for the reasons you cite, it would be unlikely, but I can certainly envisage a scenario whereby an over-enthusiastic Inspector would seek to disallow an element of your contributions on the basis that the company "should make a profit", albeit I acknowledge and personally agree with what you say regarding the parallels with IR35.

I don't think there is any definitive answer on this one as it is too soon for there to be any caselaw but I would probably personally be slightly more cautious than you and draw out as much as you can as a tax-free dividend (if anything, depending upon your other income obviously).

Whilst HMRC have issued guidance on this matter, from memory again it is not definitive.

PUMA

[ratewhore]

...I can certainly envisage a scenario whereby an over-enthusiastic Inspector would seek to disallow an element of your contributions on the basis that the company "should make a profit"...

Interesting that. I had a previous discussion with my accountant about a business class flight and how an over-enthusiastic Inspector could take the view that the increase in spend reduces profit, consequently reducing tax take and therefore disallow it...