Should I continue my private pensions now I have a Ltd?

[Hiram King Of Tyre]

How so? Quick back of a fag packet calcs...

If company makes £1000

If you pay direct from the company, in either this year or next the pension amount will be £1000.

Taking as a dividend instead (assuming dividend would be higher rate)and paying into pension:

2007/8 Corporation tax @ 20% = £200
Allows £800 dividend (£888.89 gross dividend, i.e. 800/0.9)
Tax relief on pension = £800 @ 22% = £225.64 (800/0.78)*0.22
Ultimate pension payment = £800 + £225.64 = £1025.64

2008/9 Corporation tax @ 21% = £210
Allows £790 dividend (£877.78 gross dividend, i.e 790/0.9)
Tax relief on pension = £790 @ 22% = £222.82 (790/0.78)*0.22
Ultimate pension payment = £790 + £222.82 = £1012.82

Still better off. Even 1 year more ...

2009/10 Corporation tax @ 22% = £220
Allows £780 dividend (£866.67 gross dividend, i.e 780/0.9)
Tax relief on pension = £780 @ 22% = £220 (780/0.78)*0.22
Ultimate pension payment = £780 + £220 = £1000

have I missed something?

I thought personal pension contributions could only be made out of salary (or at least equal to salary) so that you can't claim back PAYE income tax that you haven't paid

[Lewis]

I thought personal pension contributions could only be made out of salary (or at least equal to salary) so that you can't claim back PAYE income tax that you haven't paid

Don't think so. On a tax return the figures just fall out. But I don't pay more than my salary anyway so haven't looked into it.

[Hiram King Of Tyre]

If you're paying less than salary, that would be OK

[IR35 Avoider]

How so? Quick back of a fag packet calcs...

If company makes £1000

If you pay direct from the company, in either this year or next the pension amount will be £1000.

Taking as a dividend instead (assuming dividend would be higher rate)and paying into pension:

2007/8 Corporation tax @ 20% = £200
Allows £800 dividend (£888.89 gross dividend, i.e. 800/0.9)
Tax relief on pension = £800 @ 22% = £225.64 (800/0.78)*0.22
Ultimate pension payment = £800 + £225.64 = £1025.64

2008/9 Corporation tax @ 21% = £210
Allows £790 dividend (£877.78 gross dividend, i.e 790/0.9)
Tax relief on pension = £790 @ 22% = £222.82 (790/0.78)*0.22
Ultimate pension payment = £790 + £222.82 = £1012.82

Still better off. Even 1 year more ...

2009/10 Corporation tax @ 22% = £220
Allows £780 dividend (£866.67 gross dividend, i.e 780/0.9)
Tax relief on pension = £780 @ 22% = £220 (780/0.78)*0.22
Ultimate pension payment = £780 + £220 = £1000

have I missed something?

I think that what you've missed is that from April there will only be 20% tax relief on pension, as the basic rate of income tax is going down to 20%. So "ultimate pension payment" for 2008/2009 is £987.50 and for 2009/2010 is £975.

[IR35 Avoider]

Any reason for using one pension rather than spreading the contributions between several?

I can't see any advantage to having your pension in more than one place. (Unless maybe there are two different things you want to invest in, and no provider is optimal for both?)

I suppose it depends on your beliefs about investing. I don't believe fund managers add any value in choosing investments, so it's simply a question of finding the cheapest that will allow me to invest in the kind of assets I want to hold.

Even if you do want to be able to choose between lots of fund managers, there are pensions that will give you access to hundreds of different funds managed by different groups, so you don't necessarily have to split your money between different administrators in order to get a variety of fund managers.

There's nothing wrong with having more than one provider, I just think it's easier to manage things if everything's in one place.

[ashleymoran]

Even if you do want to be able to choose between lots of fund managers, there are pensions that will give you access to hundreds of different funds managed by different groups, so you don't necessarily have to split your money between different administrators in order to get a variety of fund managers.

There's nothing wrong with having more than one provider, I just think it's easier to manage things if everything's in one place.

I was mainly thinking about it from a risk point of view, ie having multiple pensions is not putting all your eggs in one basket. Is that no different than having one pension split into multiple funds?

[Bumfluff]

I need to start a pension, reading these posts I understand most of it what Im not clear on is the mechinanics of it all, in terms of the money comes from A you delcare it on your Accounts / SA etc.... ?

I want a private pension as I will go permy at some point, so would the mechnics of it be as follows,

1. I get the 'company' to pay £x amount into my personel pension monthly or quarterly, my pension contributions wont be more than my sal ?
2. The accounts show it as an expense or a benefit ?
3. I declare the amount I paid into the pension on my SA so I get the tax relief ?
4. If I set up a personal pension can I pay into it directly myself or from my ltd ?

What happens if you think your outside of IR35 and you make all your contributions from your divs, and then the IR say your not outside IR35 and your owe X amount, would they consider what you paid into pension or would you have to find the money to pay them back ?

[minstrel]

I need to start a pension, reading these posts I understand most of it what Im not clear on is the mechinanics of it all, in terms of the money comes from A you delcare it on your Accounts / SA etc.... ?

I want a private pension as I will go permy at some point, so would the mechnics of it be as follows,

1. I get the 'company' to pay £x amount into my personel pension monthly or quarterly, my pension contributions wont be more than my sal ?
2. The accounts show it as an expense or a benefit ?
3. I declare the amount I paid into the pension on my SA so I get the tax relief ?

You're confusing company and personal contributions.

Your options are:

1. Company contributions - simply pay direct from your company to the pension provider and then record it in company accounts as an expense so that you offset against Corporation Tax

2. Personal contributions - simply pay direct from personal account to the pension provider and then declare on your Self Assessment to get personal tax relief.

Personal contributions are slightly more tax efficient now, but from April 2008 Company contributions will be slightly better. This is because this year Corporation Tax is 20% and Basic Rate tax is 22%, but next year Corporation tax rises to 21% and Basic Rate tax will drop to 20%.

[Bumfluff]

You're confusing company and personal contributions.

Your options are:

1. Company contributions - simply pay direct from your company to the pension provider and then record it in company accounts as an expense so that you offset against Corporation Tax

2. Personal contributions - simply pay direct from personal account to the pension provider and then declare on your Self Assessment to get personal tax relief.

Personal contributions are slightly more tax efficient now, but from April 2008 Company contributions will be slightly better. This is because this year Corporation Tax is 20% and Basic Rate tax is 22%, but next year Corporation tax rises to 21% and Basic Rate tax will drop to 20%.

Hi thanks

Ok so there is personal and company contributions, is there personal and company pensions ? I'm not going to contract for ever and want something I can pay into through out my life. If there are personal pensions can both the company and myself pay into it ? At the moment I want to make company contributions, but in the future want to make personal contributions

[minstrel]

Hi thanks

Ok so there is personal and company contributions, is there personal and company pensions ? I'm not going to contract for ever and want something I can pay into through out my life. If there are personal pensions can both the company and myself pay into it ? At the moment I want to make company contributions, but in the future want to make personal contributions

What you want in your situation is a personal pension making company contributions (or possibly personal contributions). You can make both personal and company contributions into a personal pension. You will be able to keep your personal pension and contribute to it throughout your working life.

Given the changes in tax rates in April it might be a good idea to set up a personal pension making company contributions after 6th April and make a lump sum personal contribution before April.