Pensions Crisis?

[Bradley]

Salary

Just pay yourself a salary bonus and use it to (a) make a payment to the pension fund and (b) as a basis for paying a pension contribution from the company.

You'll get tax back on the pension contribution from post-tax income and the Revenue will find it harder to argue about the deductibility of the pension contribution.

It sounds to me like your accountant is trying to scare you into making a pension payment prior to 6th April - probably due to all that lost SIPP work?

[XLMonkey]

"a company can make a contribution of up to £215,000 on behalf of the controlling director but only £150 (3% of £5000) will be allowable as a deduction"

Rubbish.
Anyone can pay in 3,600 per annum tax free each year irrespective of earnings, provided that you are drawing a salary of some kind (even if it's only £50). After that, it gets complicated.

You can pay a certain percentage of your salary, depending on your age

Age 35 or less 17.5%
36 - 45 20%
46 - 50 25%
51 - 55 30%
56 - 60 35%
61 or more 40%

...but you can pick any year in the last 5 years as the reference salary (so, if you were permanently employed before moving to contracting, you can use your last salary there as the reference point and pay 17.5% of that, rather than 17.5% of your current salary)

And those percentages are capped. For the tax year 2005-06 it is £105,600 (so if you are 46, and earned £110,000 whilst in employment (I wish...) then you can pay in 25% of £105,600 each year, regardless of your current salary).

http://www.hmrc.gov.uk/pensionschemes/ gives the details.

[hugebrain]

If it doesn't have an employee, how is the income generated?

By a director, there is also a company secretary. They might not be considered as employees.

[NoddY]

I was hoping that from next year I would be allowed to save some money for my old age.

Have you lost your mind? Saving is so last century. All you need is a Visa card, for everything else there's MasterCard.

[Churchill]

I was hoping that from next year I would be allowed to save some money for my old age. Today I got a letter from my accountant saying that this has maybe now been cancelled.

In an example of a director taking a salary of 5000 with employees getting 3% pension contributions it gave this possible scenario:

"a company can make a contribution of up to £215,000 on behalf of the controlling director but only £150 (3% of £5000) will be allowable as a deduction"

This seems a bit harsh. Does this apply if the company has no employees (does the Company Secretary count)?

The same article suggested that you might be able to give yourself a pension equal to the "salary and pension that would be required to entice an independent person to take sort of duties and responsibilities typically associated with a controlling director".

It seems like the rules are being left deliberately unclear to set up future tax raids. Anyone here know if and how much IT Contracting Companies will be able to contribute to pensions - or is it a case of wait and see?

If it doesn't have an employee, how is the income generated?

[hugebrain]

I was hoping that from next year I would be allowed to save some money for my old age. Today I got a letter from my accountant saying that this has maybe now been cancelled.

In an example of a director taking a salary of 5000 with employees getting 3% pension contributions it gave this possible scenario:

"a company can make a contribution of up to £215,000 on behalf of the controlling director but only £150 (3% of £5000) will be allowable as a deduction"

This seems a bit harsh. Does this apply if the company has no employees (does the Company Secretary count)?

The same article suggested that you might be able to give yourself a pension equal to the "salary and pension that would be required to entice an independent person to take sort of duties and responsibilities typically associated with a controlling director".

It seems like the rules are being left deliberately unclear to set up future tax raids. Anyone here know if and how much IT Contracting Companies will be able to contribute to pensions - or is it a case of wait and see?