Pension Contibutions - Personal vs Comapany Contribution

[pmeswani]

Ah - ok. Just wondering why you still advocate a "2-tier approach" (which I assume you mean to be making personal and company contributions).

Are there any other advantages to making personal contributions? If you're accepting company contributions are more tax efficient I can't understand why you would advocate making personal contributions too?

I do advocate a 2-tier approach.... regardless of how much personal salary is being taken.

1. The Corporate Tax is saved when making an employer contributions.

2. If you want to contribute £450 of your personal salary (especially if you pay yourself £450), your pension would benefit from some rebate from the tax man.

You could argue that if you pay yourself more than £450, then the benefit may be less tangable... however, if you are a higher rate tax payer, you would have more contributions added to your pension when you do your self-assessment....therefore boosting more contributions into your pension scheme.

It is a matter of opinion, but the more you put in (up to 100% of your salary and any company contributions), the better it is for you in the long term. However, this is totally dependant on whether you can afford to make personal contributions or not.

[IR35 Avoider]

I wonder if the advantage arises from you keeping basic rate tax relief on the personal contribution. My spreadsheet assumes this would be clawed back when you do your tax return, but if the tax calculation rules allow you to keep this tax relief on untaxed income, then this is a loophole everyone can use, and pmeswani is the first to find an exception to the rule that company contributions are always better.

I had a brief look on HMRC web site, but couldn't find the tax calculation guide to see if you would be allowed to keep this.

[pmeswani]

I wonder if the advantage arises from you keeping basic rate tax relief on the personal contribution. My spreadsheet assumes this would be clawed back when you do your tax return, but if the tax calculation rules allow you to keep this tax relief on untaxed income, then this is a loophole everyone can use, and pmeswani is the first to find an exception to the rule that company contributions are always better.

I had a brief look on HMRC web site, but couldn't find the tax calculation guide to see if you would be allowed to keep this.

Let's hope I do get to keep it. My PAYE submission occurs every month, so I am wondering why HMRC are providing the rebate on my personal contributions? Who knows.

[minstrel]

I do advocate a 2-tier approach.... regardless of how much personal salary is being taken.

1. The Corporate Tax is saved when making an employer contributions.

2. If you want to contribute £450 of your personal salary (especially if you pay yourself £450), your pension would benefit from some rebate from the tax man.

You could argue that if you pay yourself more than £450, then the benefit may be less tangable... however, if you are a higher rate tax payer, you would have more contributions added to your pension when you do your self-assessment....therefore boosting more contributions into your pension scheme.

It is a matter of opinion, but the more you put in (up to 100% of your salary and any company contributions), the better it is for you in the long term. However, this is totally dependant on whether you can afford to make personal contributions or not.

Your argument seems to be it is better to make gross contributions of, for example, £5,000 personal and £5,000 company, than it is to pay £10,000 company.

If you can show me a scenario where it is better to do the 2-tier approach then I'll agree with you.

I think you are kidding yourself that because you haven't paid 20% tax on your £5k salary you are somehow getting an additional tax rebate.

That's not the case. As long as Corporation Tax (21%) > Basic Rate Tax Pension Relief (20%) it's not usually going to be better to make any personal contributions even if you are paying a low salary.

[minstrel]

Let's hope I do get to keep it. My PAYE submission occurs every month, so I am wondering why HMRC are providing the rebate on my personal contributions? Who knows.

Even if you do keep the 20% it's still less than the 21% Corporation Tax you save by making a company contribution.

[expat]

...
You could argue that if you pay yourself more than £450, then the benefit may be less tangable... however, if you are a higher rate tax payer, you would have more contributions added to your pension when you do your self-assessment....therefore boosting more contributions into your pension scheme.

I don't understand. What do you mean, the benefit may be less tangible?

Either there is a benefit or there isn't.

It is a matter of opinion

It is a matter of arithmetic, surely?

[pmeswani]

Even if you do keep the 20% it's still less than the 21% Corporation Tax you save by making a company contribution.

Hence why I recommend the 2-tier approach... The employer and employee contributions. If it turns out that you are paying 40% on your salary... happy days.

[expat]

Hence why I recommend the 2-tier approach... The employer and employee contributions. If it turns out that you are paying 40% on your salary... happy days.

[pmeswani]

I meant to say 40% tax on the salary.... then there is extra contributions made to your pension when doing the Self Assessment.

[expat]

I meant to say 40% tax on the salary.... then there is extra contributions made to your pension when doing the Self Assessment.

Ah. I have not often thought of 40% tax as a happy circumstance