Pensions and Corp tax

[willwander]

I pay myself a salary £6,035 (personal allowance) and take a £30k dividend every year. How much can the company pay into a pension and therefore not pay corp tax on it. I've been told a 'reasonable' amount. What is reasonable?

Ta

[malvolio]

Sorry, but that demonstrates a basic lack of knowledge on several levels. I'm not even going to try and explain why.

However, just as a starter for 10, pensions payments from the company aren't liable to CT.

Now ask your accountant (you do have one, I hope...) about how the company can manage its money and an IFA about the current rules on pension funds.

HTH

[RichardCranium]

Sorry, but that demonstrates a basic lack of knowledge on several levels.

Maybe that's why the OP is asking questions.

I'm not even going to try and explain why.

Then why bother replying at all?

However, just as a starter for 10, pensions payments from the company aren't liable to CT.

The OP knows that but has been told there is a limit (which means someone is giving them some sort of advice) without understanding what they have been told so is seeking clarification from peers. That is perfectly reasonable.

Now ask your accountant (you do have one, I hope...) about how the company can manage its money and an IFA about the current rules on pension funds.

"Thanks for your question now go away and ask someone else." Was it really worth your replying at all?

HTH

Very, very unlikely I would have thought.


wilwander's post struck me as a perfectly reasonable question from someone who is seeking clarification.

[RichardCranium]

willwander, does this link help at all? - the type of pension makes a difference to the answer.

Or this link? Which has:

How much can I contribute?

I doubt this link applies to you as it gives advice on pension contributions for those who know they are caught by IR35.

[ctdctd]

Good reply RC

My understanding is that your salary + pension contributions can equal your contract income with no problems at all so long as you don't exceed your personal annual allowances.

[malvolio]

Sorry but on the face of it the OP is running a business and not wanting to pay any tax if at all possible without understanding the difference between company and personal money and the associated taxation rules.

And it's maybe not as simple as you all sem to believe.

The company can pay as much as it wants into a pension fund, and all of that money is taken before calculating CT, so is effectively tax free. Even so, if he takes little in the way of income and puts lots of profits into fund investments, the company might get reclassified as an investment vehicle and attract a whole load of extra taxes which can be rolled back up to six years.

The earlier limits on personal funds are largely scrapped these days, but there is a maximum size of your lifetime pension pot that you can own without attracting taxes on it of around £1.25m (from memory). Up to that point you pay tax on the income that fund generates, of course, but not on the fund itself. However there are (as always) various considerations to be aware of so as not to waste money which will vary depending on all sorts of things. There are also boundaries on the tax treatement of various funds, there are draw-down options and a few other interesting angles. Hence the need for an IFA who will understand it all properly.

So to put it simply, the OP's company can do what it wants and save CT as a result, provided that it doesn't put so much in to his personal account that he trips over his personal taxation limits. Those limits are probably high enough not to trouble the average contractor - but this is serious money and needs to be professionally managed.

HTH

[rootsnall]

I pay myself a salary £6,035 (personal allowance) and take a £30k dividend every year. How much can the company pay into a pension and therefore not pay corp tax on it. I've been told a 'reasonable' amount. What is reasonable?

Ta

We debated this a week or two back. After talking to my accountant ( and others ) the 'reasonable' amount you are referring to appears to be that the total of your salary + Co pension contributions must not be more than what would be considered an acceptable salary for your role. So if the going salary for your skillset is say 50K then you could pay 44K in Co pension contributions before the taxman could possibly question it. Does that make sense !?

[malvolio]

Agreed, if it's you making the contributions. What if it's your company building a pot for its directors?

Like I said, as usual there are no simple answers

[rootsnall]

Agreed, if it's you making the contributions. What if it's your company building a pot for its directors?

Like I said, as usual there are no simple answers

It can be direct from Ltd contibutions on your behalf. It is only if those direct contributions ( + salary ) are 'excessive' that I assume the IR could argue it is not normal business practice ( there is an IR phrase for this waffle ), and therefore you are doing it to dodge corporation tax.

[ASB]

So if the going salary for your skillset is say 50K then you could pay 44K in Co pension contributions before the taxman could possibly question it. Does that make sense !?

Not really TBH. Current guidance from the revenue suggest that anything paid out of gross profits would be for the puroses of trade (and that is the key point in whether they are allowable for CT purposes).

Some accountants do advice a more cautious approach.