How much do you pay into a pension?

[Hiram King Of Tyre]

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.

[sidknows]

i was under the impression that a director could pay himself the market rate and this could be a combination of salary , dividends and pension in whatever ratio he/she wanted to

[moorfield]

Easy to get round this though if you want to contribute more. Put your salary equivalent in from the company (ie employer contribution) and make a personal contribution from your divis, the tax on that can then be claimed back via your self assessment. I don't see any problems doing it that way - maybe not quite as efficient though.

[Hiram King Of Tyre]

It's all a bit vague. HMRC haven't explained what "Wholly & Exclusively for the business" means.

I did read some guideline info and it seemed to imply that the pension along with any other remuneration should be appropriate. I think that means that if you pay your wife £10 an hour for book keeping say 3 hours a month, that's OK. However, if you pay her £40k pa in a pension, that isn't. My (unqualified) interpretation is that salary+pension should be commensurate. Therefore, a high pension could be used to justify a low wage (not that I can see why you would need to justify that either).

At the end of the day, paying a pension isn't avoiding tax, it's deferring it........

[Hiram King Of Tyre]

You definately can't make more personal contributions than salary (from divvies) because then you will be claiming back tax you haven't paid

[ratewhore]

I pay feck all into one. Don't believe in paying money into a scheme you can't get it back out of and then you are forced to buy a shite annuity when you retire...

[moorfield]

You definately can't make more personal contributions than salary (from divvies) because then you will be claiming back tax you haven't paid

I think you still can - under the new rules you can contribute as much as you like into a pension (upto £225k per year I think). You make personal contributions net of tax doesn't matter where that money comes from and if you are higher rate tax payer then the grossed up amount can be claimed back through your self assessment. So if your salary and divis put you in the higher rate bracket you can effectively claw back some of the additional income tax paid on your divis this way.

[moorfield]

I think you still can - under the new rules you can contribute as much as you like into a pension (upto £225k per year I think). You make personal contributions net of tax doesn't matter where that money comes from and if you are higher rate tax payer then the grossed up amount can be claimed back through your self assessment. So if your salary and divis put you in the higher rate bracket you can effectively claw back some of the additional income tax paid on your divis this way.

OK, word from the horses mouth is ....
http://www.hmrc.gov.uk/pensionschemes/pts.htm

So you can contribute as much as you like (up to £225k) but you only get tax relief on contributions upto 100% of your annual earnings.

I guess the question is then does "annual earnings" in our case mean just salary, or salary + divis ?

[DimPrawn]

I pay feck all into one. Don't believe in paying money into a scheme you can't get it back out of and then you are forced to buy a shite annuity when you retire...

I pay a very small amount as a token gesture.

Pensions are too inflexible and open the whim of New Labour to dip in and hand out the the "needy" under the banner of "fairness". Annuities are a dire waste of money and offer appalling value for money.

[Hiram King Of Tyre]

Moorfield,

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