Reply to: Pensions

[Jessica@WhiteFieldTax]

- Because i put £10,000 as personal contributed pension i can take a further £10,000 as dividend without paying any further tax
-Do personal contributions towards pension reduce my corporation tax although they are 'personal'
please let me know if i got it right

If I've read you correctly, then no and no on these points. That's because you have deducted the £10k pension contribution as if it was an employers contribution on your behalf. You can't claim it against CT and personal tax.

[Jessica@WhiteFieldTax]

This is another jargon i am unable to decipher despite some reading on various websites.What do they actually mean 'reasonable'.I am a sole earner ion the company earning well more than 100k.If i contribute around 20,000 as company contribution,will it be seen as reasonable ?

You won't find any definition of "reasonable". It's HMRCs get out clause.

But I would suggest if you are sole fee earner then anything up to 100% income is reasonable.

If you were my client, I wild be happy with advising on that basis.

[LOCUM]

I think you mean "Do company contributions towards my personal pension reduce the company's corporation tax?"

Assuming your remuneration package (salary + pension) is reasonable, which it would be if you were the sole fee earner generating £100k revenue in the year, then it's a valid business expense - so yes.

Edit: there's an HMRC guidance page with 'clarification' conceding the above, which you might want to look up.

pps.: the other points you listed seem OK to me, but I still wouldn't do this without running it past an accountant / tax professional.

This is another jargon i am unable to decipher despite some reading on various websites.What do they actually mean 'reasonable'.I am a sole earner ion the company earning well more than 100k.If i contribute around 20,000 as company contribution,will it be seen as reasonable ?

[Contreras]

-Do personal contributions towards pension reduce my corporation tax although they are 'personal'

I think you mean "Do company contributions towards my personal pension reduce the company's corporation tax?"

Assuming your remuneration package (salary + pension) is reasonable, which it would be if you were the sole fee earner generating £100k revenue in the year, then it's a valid business expense - so yes.

Edit: there's an HMRC guidance page with 'clarification' conceding the above, which you might want to look up.

pps.: the other points you listed seem OK to me, but I still wouldn't do this without running it past an accountant / tax professional.

[LOCUM]

final confirmation before opening a SIPP

illustration:
- Total income into company=£100,000
- Expenses = 10,000
-Salary= £10,000
-Personal pension contribution=£10,000 (equivalent to pensionable salary)
- Retained profit=£70,000
(Need clarification on the following)
-Corporation tax = £ 14,000
-Dividend taken without any further tax =£ 30,000
- Because i put £10,000 as personal contributed pension i can take a further £10,000 as dividend without paying any further tax
-Do personal contributions towards pension reduce my corporation tax although they are 'personal'
please let me know if i got it right

[Jessica@WhiteFieldTax]

In principle, yes.

[BalloonWizard]

I've just been reading through this thread with interest as I'm looking to make some additional pension contributions on behalf of my company.
I've been trying to get in touch with my accountant, but he's proving to be elusive at present so thought I'd ask here.

I have around £150k of available contributions under the carry forward rules and a big enough war chest to allow for that amount to put into my pension.

The NW link on a previous page says

It is possible to carry forward unused Annual Allowances from the previous three years (so in 2014/15 you could contribute up to £190,000) – in order to do this you must have been in a UK registered pension for the years from which you wish to carry forward allowances and you must earn at least as much in the tax year as you wish to contribute (£190,000 if you wished to contribute £190,000).

Now, does that last sentence refer to company earnings?
i.e. If my company makes a net profit of £100k in a particular company tax year, then could I stick £100k into my pension?

[IR35 Avoider]

Bear in mind that pension income will also be taxed so it's generally only worth doing (purely from a tax perspective) if it avoids higher rate tax, otherwise you might as well pay the basic rate tax on it now...

This advice only applies if 100% confident that income will not be found to be IR35-caught. If treating yourself as caught then any employer pension contributions that replace salary that would have fallen in the basic rate band are initially saving you something like 39% in tax, and those in the higher rate band are saving you (from memory something like) 46%.

If your pension savings are in the lower hundreds of thousands rather than the £1 million neighbourhood then you have a pretty reasonable chance of only at most paying basic rate tax on it, which equates on average to 15%, taking the tax-free quarter into account.

[PerfectStorm]

Funnily enough an IFA quoted the 9K figure to me the other day. Felt a bit embarrassed trying to correct him.

[TheFaQQer]

The £9000 figure i am told is the most you can take as a salry + £ 30,000 as dividend so you are most tax efficient and anything above 9000 will incur income tax.Am i wrong ?

This year, with the NI rebate, £10k is marginally better off.

[LOCUM]

Net £9,000 personal contribution is grossed up to £11,250 (this is what the pension receives after tax relief). Company may then contribute up to £28,750 (gross, it doesn't get relief) for the pension to receive a total of £40k. Your personal tax allowance is increased by £11,250, meaning the company can pay out further net dividends of £10,125 without you incurring high rate tax.

Btw, my previous post suggesting £9k + £31k contribs was clearly wrong, as you can see. I'm not guaranteeing the above figures either!

Will re-iterate that it would be sensible to discuss this with a tax professional when commiting large sums like that.

Would also question why £9k salary?

The £9000 figure i am told is the most you can take as a salry + £ 30,000 as dividend so you are most tax efficient and anything above 9000 will incur income tax.Am i wrong ?

[Forbes Young]

Thanks for all your valuable suggestions.I went onto Hargreaves Landsown SIPP website where they clearly mention that a company contribution could be unto £40,000 per tax year.I am quite confident now about the cap.I really liked the idea of CONTRERAS i.e £9000 personal + 31,000 company contribution.I have decided to contact a specialist IFA.

Forbes Young- i can't find Phillip Lee on Hanson wealth website.Did you get the name wrong ? Does he specialise in SIPP ? How would you rate his services ?

Philip Lee works through Hanson - dont know the admin/website detail. I rate him highly - Ive known him for a long time. You will need to ask him about how specialised he is in various options.
Graeme Bennett ACMA MBA

[Contreras]

From Nixon Williams website

Personal Pension Contributions
These are contributions made to a pension scheme from personal funds and as such attract personal tax relief. The pension provider will reclaim the basic rate tax paid to make the contribution and this will be added to the pension fund. i.e. an £80 contribution will add £100 to the pension fund). Your basic rate band will also be extended by the gross pension contribution (£100 in this example) so if you are a higher or additional rate tax payer tax relief is given in full i.e. up to the top rate of tax you pay.

Can you explin the last bit in the above paragraph using a simple example.A company earns £100,000 per annum,expenses £20,000,Salary £9000,Pension £9000.

Net £9,000 personal contribution is grossed up to £11,250 (this is what the pension receives after tax relief). Company may then contribute up to £28,750 (gross, it doesn't get relief) for the pension to receive a total of £40k. Your personal tax allowance is increased by £11,250, meaning the company can pay out further net dividends of £10,125 without you incurring high rate tax.

Btw, my previous post suggesting £9k + £31k contribs was clearly wrong, as you can see. I'm not guaranteeing the above figures either!

Will re-iterate that it would be sensible to discuss this with a tax professional when commiting large sums like that.

Would also question why £9k salary?

[LOCUM]

From Nixon Williams website

Personal Pension Contributions
These are contributions made to a pension scheme from personal funds and as such attract personal tax relief. The pension provider will reclaim the basic rate tax paid to make the contribution and this will be added to the pension fund. i.e. an £80 contribution will add £100 to the pension fund). Your basic rate band will also be extended by the gross pension contribution (£100 in this example) so if you are a higher or additional rate tax payer tax relief is given in full i.e. up to the top rate of tax you pay.

Can you explin the last bit in the above paragraph using a simple example.A company earns £100,000 per annum,expenses £20,000,Salary £9000,Pension £9000.

[PerfectStorm]

Nothing new here, but I think this NW guide covers the points made in this thread reasonably well

Claiming for Pension Contributions as an Expense | Nixon Williams