Quick question on "money management" (Tax)

[minstrel]

Dividends aren't pensionable so you have to show the salary as being paid. This means that the company pay Corp Tax and then NI contribs to you for the salary. You then pay tax and NI on the salary and get 22% relief on the contrib.

Pay a company contribution and get relief at 19% on Corp Tax. No need to pay Employer NI or employee NI and Income Tax, a much better arrangement. Also, there is a lot more flexibility on the level of contrib a company can make.

I don't agree with what you are saying, but happy to stand corrected if you can prove me wrong.

If I understand you correctly, you are saying that dividends don't come into the picture because it is only salary that counts to pension contribution limits?

I think you are confusing the pension contribution limits (100% of salary) with the differential effect of paying additional dividends and personal contributions instead of company contributions.

I agree that Corporation Tax and NI contributions on salary would outweigh the 22% relief. However, salary is a fixed variable - MyCo is not going to pay me any more or less salary whether I decide to go the company or the personal contribution route. NI and Income Tax are sunk costs whichever route I take so doesn't come into the calculation.

Given that salary is a fixed variable, it boils down to do I pay £x to my pension direct from the company or do I take 19% CT hit on £x, make a dividend distribution and then take the 22% relief.

If you do the calculations I think you'll find if you keep salary fixed it works out better making the contribution personally.

If you disagree, please show your calculations.

[themistry]

The revenue will allow this because they are un-connected persons. Your wife is a connected person and the revenue will think you are TTP, which you are.

You have almost no chance of being allowed to sponsor you wife for this.

tim

Just to follow up, after speaking with my Accountant, as stated by Tim, "this just aint gonna happen"

Oh well, anything that is legal is worth a shot in my opinion!

Thanks for all help and suggestions here,

TM

[tim123]

Hi guys,

well I have seen large corporates sponsor individuals through a degree/masters on the assumption they work for the company afterwards.

What are your thoughts?
TM

The revenue will allow this because they are un-connected persons. Your wife is a connected person and the revenue will think you are TTP, which you are.

You have almost no chance of being allowed to sponsor you wife for this.

tim

[glashIFA@Paramount]

That's only true if you are inside IR35 and paying yourself all via salary (which is not what the scenario in the OP).

If you are outside IR35 and paying yourself a small salary and dividends it is better to make the contribution personally. Company suffers 19% Corporation Tax, but you get 22% relief when you make personal contribution to the pension.

Dividends aren't pensionable so you have to show the salary as being paid. This means that the company pay Corp Tax and then NI contribs to you for the salary. You then pay tax and NI on the salary and get 22% relief on the contrib.

Pay a company contribution and get relief at 19% on Corp Tax. No need to pay Employer NI or employee NI and Income Tax, a much better arrangement. Also, there is a lot more flexibility on the level of contrib a company can make.

[minstrel]

It is still better to have your 'employer' contribute to you pension because you don't get any refund of the national insurance contributions you and your employer will have paid, if you take the money out of the company to pay it into the pension.

That's only true if you are inside IR35 and paying yourself all via salary (which is not what the scenario in the OP).

If you are outside IR35 and paying yourself a small salary and dividends it is better to make the contribution personally. Company suffers 19% Corporation Tax, but you get 22% relief when you make personal contribution to the pension.

[tacpot]

Pension tax relief

The government will not put any money into your pension fund for contributions from your employer, only from yourself. This is because the money they put in is a tax refund - you have to have paid the tax to have it refunded!

It is still better to have your 'employer' contribute to you pension because you don't get any refund of the national insurance contributions you and your employer will have paid, if you take the money out of the company to pay it into the pension.

A reasonable contribution from your employer to your pension should be easy to defend from any tax avoidance challenge. For 'reasonable' I'd follow the old Inland Revenue maximums for contributions to personal pensions (17.5% of gross salary if you are under 40).

[PAG]

If you are just contracting then it is difficult to justify that you paid £12k for the masters and only used her for creating website. However, if you have further plans for your company like seek other means of revenue and marketing is required then may be !!!!

[themistry]

If completing the masters degree will benefit the company directly then I see no reason why your co can't sponsor her. Also what part does your wife play in the company ??

Hi guys,

well I have seen large corporates sponsor individuals through a degree/masters on the assumption they work for the company afterwards.

I would like todo something similar. The masters is in Marketing, so it would hardly be difficult to make some role for her. Even if it means making a website for the company etc.

What are your thoughts?
TM

[themistry]

Oh and as far as the pension goes, if I remember correctly from my tax exams , government top up is only for personal pension plans, nothing like that for companies, unless something's changed recently.

It is a personal pension plan, well, a stake holder. However, the company will be putting the money into it, not me. It is not a company pension scheme.

TM

[Sanyu]

Oh and as far as the pension goes, if I remember correctly from my tax exams , government top up is only for personal pension plans, nothing like that for companies, unless something's changed recently.

[Sanyu]

Well, as far as your wife's training being deducted as company's expenses, this is only allowable if your wife is an 'employee' of your company. Otherwise, no way Inland Revenue will accept that.

[PAG]

2) My wife wants todo a masters degree starting in October, bloody expensive at £12k. I was thinking of getting the company to "sponsor" her and pay her tution. Could I do this out of pre-tax earnings too?

If completing the masters degree will benefit the company directly then I see no reason why your co can't sponsor her. Also what part does your wife play in the company ??

[themistry]

Hi guys,

just a few questions for you in regards to taxation. A few things im wanting todo, but not sure if they are allowed.

1) Create a pension scheme and have my company pay into it. I am looking to put approx 10% of the turnover into the pension. Now I know I can do this and the money into the pension is pre tax, however will the Government put any additional money in on top (as it was paid in by a company and not me?).

2) My wife wants todo a masters degree starting in October, bloody expensive at £12k. I was thinking of getting the company to "sponsor" her and pay her tution. Could I do this out of pre-tax earnings too?

This would take a nice chunk out of my earnings that I won't have to pay tax on (I hope, fingers crossed).

I will then have a more managable chunk left, approx £60k. I intend to just take a low salary and dividends for this amount hoping its relatively low value will draw me less attention from HMRC. However, thats only £20k above the 40% threshold, so maybe you guys could come up with a better idea on how to deal with it.

Thanks for any and all advice,
TM