Reply to: SIPP info needed

[moorfield]

There's not a lot in it.

+1

Personally I find it a lot less hassle just to make contributions direct from the ltdco.

[expat]

i currently pay my HL SIPP monthly from my private account is it better to make the payments from my business account? if so what are the main difference to me and my company? And is there any benefit in doing this?

thanks

If you are working within IR35, or to be precise if your company is paying you salary rather than dividends, so that PAYE and NICs are paid on your income, then it is better for the company to make the payments than for you to do it. It is better by the amount of NICs paid.


Examples, on £1000 salary.

(A) Personal contributions.
Company money needed to pay salary: £1128
Gross salary: £1000
Net salary: £590 (assuming this tranche subject to 40% tax and 1% EE NIC)
Into SIPP: £590
Grossed up by HL to: £737.50 (i.e. as if it had 20% tax).
Result for SIPP: £737.50.
In SA, claim for rest of Higher Rate Tax relief:
Tax refund £250 (to you personally).

So you get £250 and the SIPP gets £737.50. HMRC get £140.50 (NICs, plus £2.50 arithmetical quirk).

(B) Company contributions.
Same Company money: £1128
Into SIPP: £1128.
No grossing-up or relief.
Result for SIPP: £1128.

So you get £0 and the SIPP gets £1128. HMRC get £0.

[ASB]

My opinion on it always was that the Personal Tax reclaimed from HMRC (22% of the gross figure) was more than the Corporation Tax (19% of the gross figure) that my Ltd company would pay. so I always contributed personally.

Depends on level of contribution etc; in order to get that personal income it has also suffered EE and ER NI.

[Gonzo]

i currently pay my HL SIPP monthly from my private account is it better to make the payments from my business account? if so what are the main difference to me and my company? And is there any benefit in doing this?

thanks

There's not a lot in it.

The debate about whether it is best to make company contributions or personal contributions to a pensions has been round and round on here before, and I think that the conclusion is that there is not a lot in it, but it depends on how you are paid and whether or not you are paying up under IR35.

My opinion on it always was that the Personal Tax reclaimed from HMRC (22% of the gross figure) was more than the Corporation Tax (19% of the gross figure) that my Ltd company would pay. so I always contributed personally.

But beware, those tax rates are changed by the government frequently and I think the pendulum has swung in favour of company contributions at the moment.

I am not an accountant and it is also possible that I was just wrong in the first place of course.

[diesel]

i currently pay my HL SIPP monthly from my private account is it better to make the payments from my business account? if so what are the main difference to me and my company? And is there any benefit in doing this?

thanks

[Fred Bloggs]

You pay for the kid's/wife's SIPP out of persoanl income and get tax relief added. I do this for my kids.

[pmeswani]

Let me confirm... as a director of myCo, myCo can pay £2,880 into a SIPP for my children each and every year. Is this payment tax deductible in myCo? And then HMRC add a tax credit? Can I do this for all of my children? And all my wives? What about the cat?

This doesn't sound right. Looks like the tax benefit comes round twice - most unlike HMRC who normally want it twice. If its out of personal funds not the same.

It won't be yourco that will be paying it, it will be you as an individual. And no, the money from yourco won't attract any tax add-ons.

[Emigre]

Funny you mention the "mistress"......

Theres nothing to stop anyone from paying £2,880 each year into a pension/sipp etc for their children, wife who does not work....... The HMRC will top it up with £720 tax free rebate, so £3,600 each year gets paid in. This is no requirement to be a tax payer to get the tax free rebate benefit up to this amount!

Instead of giving them lots of extra pocket money, or top up the housekeeping!

If you do it for your wife, she can have her own pension and pay for you when she gets it!

Let me confirm... as a director of myCo, myCo can pay £2,880 into a SIPP for my children each and every year. Is this payment tax deductible in myCo? And then HMRC add a tax credit? Can I do this for all of my children? And all my wives? What about the cat?

This doesn't sound right. Looks like the tax benefit comes round twice - most unlike HMRC who normally want it twice. If its out of personal funds not the same.

[Ruprect]

Funny you mention the "mistress"......

Theres nothing to stop anyone from paying £2,880 each year into a pension/sipp etc for their children, wife who does not work....... The HMRC will top it up with £720 tax free rebate, so £3,600 each year gets paid in. This is no requirement to be a tax payer to get the tax free rebate benefit up to this amount!

Instead of giving them lots of extra pocket money, or top up the housekeeping!

If you do it for your wife, she can have her own pension and pay for you when she gets it!

IANAA but that sounds like gonads to me.

[Little'Old Me]

Yes, there is always something. I think that is still the one they use to attack a 20k salary paid to the mistress.....

Funny you mention the "mistress"......

Theres nothing to stop anyone from paying £2,880 each year into a pension/sipp etc for their children, wife who does not work....... The HMRC will top it up with £720 tax free rebate, so £3,600 each year gets paid in. This is no requirement to be a tax payer to get the tax free rebate benefit up to this amount!

Instead of giving them lots of extra pocket money, or top up the housekeeping!

If you do it for your wife, she can have her own pension and pay for you when she gets it!

[ASB]

There is a tax case the HMRC use to show "Money laid out by directors for their own benefit not for the purposes of the company's trade"

If you are bored, you can read about it here:
http://www.hmrc.gov.uk/manuals/bimmanual/BIM37745.htm

Yes, there is always something. I think that is still the one they use to attack a 20k salary paid to the mistress.....

[Little'Old Me]

I'm not sure it's necessarily plane sailing and HMRC could raise objectections; but I don't see what grounds they would have ultimately to refuse the CT allowability.

There is a tax case the HMRC use to show "Money laid out by directors for their own benefit not for the purposes of the company's trade"

If you are bored, you can read about it here:
http://www.hmrc.gov.uk/manuals/bimmanual/BIM37745.htm

[ASB]

And Salary sacrifice is considered an expense incurred wholly and exclusively for the purposes of the employer’s trade or profession.................

I'm not sure it's necessarily plane sailing and HMRC could raise objectections; but I don't see what grounds they would have ultimately to refuse the CT allowability.

Also I wonder what the downside actually is were they to do this. Ok, CT becomes payable, but were it not then it the monies would have been paid as a dividend, this would have attracted some higher rate tax which could not have got releif because there was no pensionable income. If the money was paid as salary then there is NI up to the threshold plus employers NI so I suspect in a lot of cases the effect would be broadly neutral anyway.

Of course there is also the possibility of setting a FURBS rather than a SIPP or other pension; but this is an entirely different regime anyway.

Incidentally the large company I work for has just insisted that all pension contributions are made by salary sacrifice pointing out that this in effect means all higer rate taxpayers will be saving 1% of the contibution amount and standard rate taxpayers will be sacing the 10 odd percent NI. They didn't offer to split the 13% ER's NI they are a saving. A number of millions annually for the company - so maybe some of it finds its way into the bonus or salary review pots.

[Little'Old Me]

There would be no employers NI due in the case of a salary sacrifice. I fully intend that my last year or maybe two of contracting income will go entirely into my SIPP. Probably looking at an 8 or 9 year timescale before I'm in a position to do that and retire though. I'd be 60 or 61.

And Salary sacrifice is considered an expense incurred wholly and exclusively for the purposes of the employer’s trade or profession.................

[Fred Bloggs]

I think you must lose your employer's NI that way ? Anybody know how that works out ? I suppose I should ask my accountant.

There would be no employers NI due in the case of a salary sacrifice. I fully intend that my last year or maybe two of contracting income will go entirely into my SIPP. Probably looking at an 8 or 9 year timescale before I'm in a position to do that and retire though. I'd be 60 or 61.