Reply to: How can I calculate my pension allowance this year?

[Syd]

Do you need to tell them exactly what shares to buy? Or you can go with a tracker fund?

I feel intimidated to start purchasing stocks on my own with my pension money.

Also, how long does it take to open an account?

[Ricardo19ip]

OP may I ask where's your SIPP?

Halifax SIPP. After checking reviews, I think it is the most cost effective in the long term.
I had Aviva, but transfered everything there.
I bought a global index tracker from vanguard and I programmed the system to invest 1200 monthly.
I will check again in 25 years to see if I am finally millionare ????

[Syd]

Looking for SIPP

OP may I ask where's your SIPP?

[WordIsBond]

Look at that, I learned something.

Unless I'm wrong this time.

It happened to me once back in 1983, so it could happen again. Pretty sure it didn't this time, though.

[56samba]

It might be key, but it is wrong. As long as you had any pension open, you can contribute carryovers from years in which it was open, up to the last three. They don't have to go into a pension that was open, your right to use the allowance is predicated on whether or not you had any pension open.

Look at that, I learned something.

[WordIsBond]

This is key. you can only backdate into a SIPP you already had open. So you will be restricted to a 40k Employers contrib, this years only.

It might be key, but it is wrong. As long as you had any pension open, you can contribute carryovers from years in which it was open, up to the last three. They don't have to go into a pension that was open, your right to use the allowance is predicated on whether or not you had any pension open.

[56samba]

(I will open a SIPP in a few days).

This is key. you can only backdate into a SIPP you already had open. So you will be restricted to a 40k Employers contrib, this years only.

[WLB2018]

I will just amend a very popular phase used on this forum to fit your situation...

Have you asked your financial advisor?

In all seriousness; I had a very similar situation, not fully understanding it all, thus got myself an IFA to help me

[Ricardo19ip]

There's no issue backdating your pension contribution so long as you have enough company profit/retained earnings to cover the £108K.

If you do move loadsamoney i'd be wary of investing all of it right now e.g into funds and shares but rather drip it in. Otherwise if it crashes in the near future then buy buy buy.

PS. I'm no financial advisor

Actually, that was my plan

[SeededLoaf]

There's no issue backdating your pension contribution so long as you have enough company profit/retained earnings to cover the £108K.

If you do move loadsamoney i'd be wary of investing all of it right now e.g into funds and shares but rather drip it in. Otherwise if it crashes in the near future then buy buy buy.

PS. I'm no financial advisor

[Ricardo19ip]

The 40K limit is for all contributions - employer and employee

See here

The Annual Allowance - The Pensions Advisory Service

"The annual allowance applies across all of the schemes you belong to, it’s not a ‘per scheme’ limit and includes all of the contributions that you or your employer pay or anyone else who pays on your behalf."

OK, Thanks a lot. It is a bit complex this topic.

So, my allowance is just 40K*3 - 12K = about 108K, as IR35 Avoider said.
That's good, more than enough.
My only question is that if I move a large amount, like 80K or 100K, will HMRC complain about that or is there any other rule against that?

Thanks a lot for suggestions.

[mudskipper]

The 40K limit is for all contributions - employer and employee

See here

The Annual Allowance - The Pensions Advisory Service

"The annual allowance applies across all of the schemes you belong to, it’s not a ‘per scheme’ limit and includes all of the contributions that you or your employer pay or anyone else who pays on your behalf."

[Ricardo19ip]

here I use my earnings as a limit, not the 40,000 limit, because my earnings are less than 40,000

The annual allowance is 40,000 a year, regardless of your earnings. So your annual allowance is roughly 107K (=85K+(40K-18K)). (There is a restriction on annual allowance if your earnings are over 150K, am assuming that doesn't apply. Also, if you have taken money out of a pension, the amount you can contribute may be restricted.)

In a particular year, you cannot get get tax relief on a personal contribution of more than your earnings, but that restriction does not apply to employer contributions. This rule is a separate thing to the annual allowance. It may override the total annual allowance, as in if you wanted to make a personal contribution this year, your annual allowance is 107K but you could actually only get tax relief on 18K of personal contributions.

However your earnings (salary) is irrelevant because as a contractor you should be making an employer contribution, not a personal one. Your limit for an employer contribution is 107K.

Crunch's statement makes no sense, because you absolutely can reduce your profits to zero by increasing your remuneration, and it's none of HMRC's business how your remuneration is split between salary and pension. I guess what they were trying to say is that you shouldn't pay more than your turnover into a pension. The rule-of-thumb that I learned a decade or so ago when I investigated the possibility of corporation tax relief being disallowed on excessive contributions is that if you've personally brought in all the companies income, then a contribution cannot be excessive. (If you paid a large contribution to your spouse/company secretary, that's when you might have to worry whether it would be regarded as excessive.)

I have in the past paid a contribution large enough to cause my company to make a loss in the year it was paid. (Crunch were my accountant at the time.)

Thanks a lot. I didn't know that the rules are different depending on if it is a personal contribution or an employer contribution.
So, is it perfectly legal to send a 107K contribution from my LTD and declare £0 in profits? Sounds strange.

EDIT: Wait a minute. Reading this:
Contributing to a pension from your limited company | PensionBee
I see the difference between personal contribution and employer contribution in 2 different sections.

Same thing when reading the book "Tax optimisation strategies for your Limited Company", I see clearly these 2 types and their different rules:


Checking that I understand I could transfer to my pension as much as I want, there is no tax relief (because I save it through the corporation tax I don't have to pay) and there are no limits, no 40,000 limit or anything related to 3 previous years rule.

There is only one rule related to 150K, but because my company turnover is slightly less than 150K, I don't have to worry.

Does this mean I can transfer all my profits (something like 100K or 120K) to my pension and declare £0 as profits and I don't have to pay corporation tax? Is this perfectly legal? Again, it sounds strange to me.
Thanks a lot for suggestions.

[IR35 Avoider]

here I use my earnings as a limit, not the 40,000 limit, because my earnings are less than 40,000

The annual allowance is 40,000 a year, regardless of your earnings. So your annual allowance is roughly 107K (=85K+(40K-18K)). (There is a restriction on annual allowance if your earnings are over 150K, am assuming that doesn't apply. Also, if you have taken money out of a pension, the amount you can contribute may be restricted.)

In a particular year, you cannot get get tax relief on a personal contribution of more than your earnings, but that restriction does not apply to employer contributions. This rule is a separate thing to the annual allowance. It may override the total annual allowance, as in if you wanted to make a personal contribution this year, your annual allowance is 107K but you could actually only get tax relief on 18K of personal contributions.

However your earnings (salary) is irrelevant because as a contractor you should be making an employer contribution, not a personal one. Your limit for an employer contribution is 107K.

Crunch's statement makes no sense, because you absolutely can reduce your profits to zero by increasing your remuneration, and it's none of HMRC's business how your remuneration is split between salary and pension. I guess what they were trying to say is that you shouldn't pay more than your turnover into a pension. The rule-of-thumb that I learned a decade or so ago when I investigated the possibility of corporation tax relief being disallowed on excessive contributions is that if you've personally brought in all the companies income, then a contribution cannot be excessive. (If you paid a large contribution to your spouse/company secretary, that's when you might have to worry whether it would be regarded as excessive.)

I have in the past paid a contribution large enough to cause my company to make a loss in the year it was paid. (Crunch were my accountant at the time.)

[Ricardo19ip]

What did your accountant say?

I sent him an email last night.
I guess he will reply on Monday (or later).