Director's pension, salary and dividend

[ASB]

There's also a lifetime allowance to watch out for.

Signs are that is reducing. Also it is based on fund value not contributions. Breach it and there are some pretty hefty taxes involved. 60% on that bit taken as a lump sum for example.

[Martin at NixonWilliams]

Assuming no other income, my maths says that there won't be a higher tax rate liability to pay.

I assumed that the OP has been declaring dividends and has not been living on £640 per month!

[DirtyDog]

I assumed that the OP has been declaring dividends and has not been living on £640 per month!

I pay £640 a month and a £30k dividend at the start of the tax year to live off for the next 12 months. No higher rate liability

[90 Right]

Hello everyone, been lurking for a while now since setting up my own co' a couple of years ago, but this is my first post so please go easy........

If as a director of your co' you pay yourself a salary of £640/m and you then contribute the maximum (£512/m) to a pension via net pay arrangement. How much dividend can you take before paying any tax?

Cheers in advance

[northernladuk]

Hello everyone, been lurking for a while now since setting up my own co' a couple of years ago, but this is my first post so please go easy........

If as a director of your co' you pay yourself a salary of £640/m and you then contribute the maximum (£512/m) to a pension via net pay arrangement. How much dividend can you take before paying any tax?

Cheers in advance

What does your accountant say?

[ASB]

Hello everyone, been lurking for a while now since setting up my own co' a couple of years ago, but this is my first post so please go easy........

If as a director of your co' you pay yourself a salary of £640/m and you then contribute the maximum (£512/m) to a pension via net pay arrangement. How much dividend can you take before paying any tax?

Cheers in advance

I cannot think of any circumstance in which it makes a difference. The pension contribution does not affect your taxable income.

I do not understand this appareng naximum of 512 you are talking about. Personal contributions are generally limited to 100% of salary. Company ones unlimited (but inefficient over 50k reducing to 40 k)

edit. I see where you get the 512 from. But I dont believe it works that way. Limit is gross salary not net salary; in any event the salary you desctibe would not of itself give a ta liability.

I suspect you may be looking for maximum efficiency. The key here is to make personal payments of up to the de minimus limit, since you get relief on that even though no tax has been paid. Or up to your personal allowance if you have income for the same reason. Or up to your salary if it is between the two.

It is not worth increasing salary to pay more pension. Due to ni. Corporate conributions are better. And ir35 proof. There may be rare occasions where if you have other salary personal contributions are better.

I did produce a set of worked examples a couple of years back. Demonstrating the amount that ended up in your pot. It may no linger be entirely accurate. In any event individual circumstances change it but the general rule was:

get as much free relief against untaxed personal income
dont pay salary to increase potential contributions
corporate contributions were marginally more efficient under most circumstances
higher rate taxpayers it is more dependant on sources of all income

[Martin at NixonWilliams]

I pay £640 a month and a £30k dividend at the start of the tax year to live off for the next 12 months. No higher rate liability

The basic rate band is £32,010, this is extended by the gross value of the contributions made. If you have made 12 gross contributions of £640 the basic rate band will be £39,690.

The total amount of (net) dividends available before reaching the higher rate threshold is therefore £37,305 (£41,450 gross).

I hope this helps.

Martin

[DirtyDog]

Hello everyone, been lurking for a while now since setting up my own co' a couple of years ago, but this is my first post so please go easy........

If as a director of your co' you pay yourself a salary of £640/m and you then contribute the maximum (£512/m) to a pension via net pay arrangement. How much dividend can you take before paying any tax?

Cheers in advance

Where does the £512 maximum come from?

Anyway, the pension contribution is irrelevant in calculating how much dividend you can take before hitting the higher tax band.

[Martin at NixonWilliams]

Where does the £512 maximum come from?

Anyway, the pension contribution is irrelevant in calculating how much dividend you can take before hitting the higher tax band.

£512 is the net contribution, i.e. 80% of the maximum gross contribution allowed (£640) in order to receive tax relief.

The gross pension contributions extend the basic rate band and so the higher rate threshold will be higher with each contribution that is made.

[90 Right]

The basic rate band is £32,010, this is extended by the gross value of the contributions made. If you have made 12 gross contributions of £640 the basic rate band will be £39,690.

The total amount of (net) dividends available before reaching the higher rate threshold is therefore £37,305 (£41,450 gross).

I hope this helps.

Martin

Thanks Martin, that's really helpful