Pension Advice

[lukemg]

Make sure you aren't getting ripped in expensive under-performing pension funds (many from mainstream providers are )
Consider setting up a SIPP and transferring all of them into that under your control. There are plenty of low cost tracker funds you can use which are likely to do well for you over time without someone scything off 2%/year for nothing !

[ASB]

10k generally.
As per its thread title. Review the thread and all should become clear.

[iburnell]

Thanks for your responses

Last question - what is the "optimal" salary - I see 7k mentioned. The perceived wisdom here seems to be to drop the salary right down and leave as much cash in the company to top up either the EPP or personal. If I am making both contribution from the company I don't really see much point in splitting payments just increase payments into the EPP from the company. However, even if I was receiving 7k salary I would want to try and make personal payments into the personal plan up to that value as well to maximise efficiency

[ContrataxLtd]

Sorry. I wasn't being clear with my question. I know that it makes sense to put as much from the company as I can, but I'm talking about personal contibutions as well. My problem is I don't have a lot of money in the company, so using the 20k salary example the idea would be to use up as much as possible paying from the limited company into the executive pension plan but then ALSO take my salary on a personal level and contibute into the personal pension plan i.e. pay 20k received as salary into the personal plan - Do you get tax relief on personal payemnts or is it gross/net ?. Clearly the salary I receive personally is after tax (most contracts are in IR35)

Hi Iburnell

Based on the limited information available in this thread I think you should have a chat with your accountant. If most of your contracts are 'inside' IR35 then you may be able to save quite a bit in tax by paying the pension contributions direct from the company to save the NI on the salary (both employees and employers).

I know you have stated you are doing this already but are also receiving around £20k net from a salary which means you should still have funds in the Limited if you were to lower your salary to pay the additional pension. This would be ok under the IR35 rules because the company pension contribution is a qualifying expense when calculating the deemed salary.

On the face of it, it seems pointless paying yourself a salary and incurring both employees NI and employers NI when all you are going to do is put the net salary into a pension personally!

Hope this helps.

Martin
Contratax Ltd

[Martin at NixonWilliams]

Sorry. I wasn't being clear with my question. I know that it makes sense to put as much from the company as I can, but I'm talking about personal contibutions as well. My problem is I don't have a lot of money in the company, so using the 20k salary example the idea would be to use up as much as possible paying from the limited company into the executive pension plan but then ALSO take my salary on a personal level and contibute into the personal pension plan i.e. pay 20k received as salary into the personal plan - Do you get tax relief on personal payemnts or is it gross/net ?. Clearly the salary I receive personally is after tax (most contracts are in IR35)

If you contribute personally you make the payment net of basic rate tax relief. For example, when making a £100 contribution you would pay in £80, the additional £20 would be collected from HMRC by the pension provider.

If you are a higher rate tax payer, which I assume is the case here with your contracts being caught by IR35, you will receive a further 20% relief. The payment mechanism is still the same, i.e. you pay in 80%, however your basic rate tax band is extended by the gross value of the contribution.

For example, if you make a gross contribution of £5,000 this means your basic rate band would be extended by from £32,010 to £37,010 - The effect of this is that an additional £5,000 of your income is being taxed at 20% rather than 40%, which is where the additional 20% comes in.

[iburnell]

Sorry. I wasn't being clear with my question. I know that it makes sense to put as much from the company as I can, but I'm talking about personal contibutions as well. My problem is I don't have a lot of money in the company, so using the 20k salary example the idea would be to use up as much as possible paying from the limited company into the executive pension plan but then ALSO take my salary on a personal level and contibute into the personal pension plan i.e. pay 20k received as salary into the personal plan - Do you get tax relief on personal payemnts or is it gross/net ?. Clearly the salary I receive personally is after tax (most contracts are in IR35)

[Contreras]

Thanks for the replies

So lets say for example I made £20,000 gross salary in the 2013/14 tax year

Does this mean I could contribute (in theory) 20k into my personal pension AND 20k into the executive pension plan i.e. employer contributions. That's where I get confused. I understand the overall total amount - although I'm interested in the backdating - but I was led to beleive you could only contribute up to the maximum amout of salary. If the EPP does not class as salary since its employer contributions then that helps me

Also just to clarify is the total amount gross or net salary?

There should be nothing to stop you making a company contribution to the personal pension. That way it is not limited to 100% salary. If your contracts are not IR35 caught then £7k salary would more efficient in most cases.

You can't backdate contributions. What you can do is carry back unused part of the £50k personal annual allowance from previous years. Definitely get professional advice if you want to do this or if you are considering company contributions that would make a loss for the present year.

Edit: just to be clear, the carry back has nothing to do with salary level, either currently on in previous years.

[iburnell]

Thanks for the replies

So lets say for example I made £20,000 gross salary in the 2013/14 tax year

Does this mean I could contribute (in theory) 20k into my personal pension AND 20k into the executive pension plan i.e. employer contributions. That's where I get confused. I understand the overall total amount - although I'm interested in the backdating - but I was led to beleive you could only contribute up to the maximum amout of salary. If the EPP does not class as salary since its employer contributions then that helps me

Also just to clarify is the total amount gross or net salary?

[Craig at Nixon Williams]

Tax relief on personal contributions is limited to gross salary. If you make contributions from the company then this isn’t limited to gross salary so you have scope to go higher than this (up to the possible £50k in the current tax year, ignoring any carry back).

Our advice on this is that you should not make pension contributions that will cause your company to make a trading loss as HMRC could argue that it isn’t a commercial expense and disallow tax relief. Therefore even if your company does have reserves, if there isn’t much profit in the current year then you should restrict the pension contributions to profit in order to protect the tax relief.

Hope this helps!
Craig

[Contreras]

I have two Pensions one Executive Pension through my Ltd. Company and the other a Personal Pension both with Standard Life. I prefer to manage my own funds having paid for "expert" advisers in the past

I was led to believe that the maximum you can pay was limited to £50,000 per annum and limited to the amount of salary you receive - so that being BOTH Pensions. However, my accountant tells me that the Executive Pension being employer contributions is not dependent on after tax salary. Does this therefore mean I can pay up to 50k (not that I could in EITHER pension i.e. 50k to the EPP and 50k to the personal ??

My company did poorly this year 2013/14 but did well 2010,11 and 12 but again from talking to Standard Life I believe you can't back date payments. I've been steadily building up my EPP but would like to use savings/salary to add as much as I can into the personal plan which at the moment is small (15k)

Thanks

The amount is not limited or related to the salary received so long as the contribution is direct from company to pension. I'm not sure there really is a distinction between Executive Pensions and Personal Pensions any more. Your company could pay contributions direct into either pension if Standard Life would allow it.

Total contribution across both pension is limited to £50k (£40k next year) plus any unused allowance from previous (three ?) years. This is not "backdating" contributions but simply using the portion of unused personal allowance from previous years. IANAA.

[ASB]

The total of all contributions to all pensions from all sources is limited to 50k dropping to 40k soon.

carryback is possible in some circumstances. Hmrc website has all the details.

[SueEllen]

Talk to your accountant however in your employer based pension you can back date payments

[iburnell]

I have two Pensions one Executive Pension through my Ltd. Company and the other a Personal Pension both with Standard Life. I prefer to manage my own funds having paid for "expert" advisers in the past

I was led to believe that the maximum you can pay was limited to £50,000 per annum and limited to the amount of salary you receive - so that being BOTH Pensions. However, my accountant tells me that the Executive Pension being employer contributions is not dependent on after tax salary. Does this therefore mean I can pay up to 50k (not that I could in EITHER pension i.e. 50k to the EPP and 50k to the personal ??

My company did poorly this year 2013/14 but did well 2010,11 and 12 but again from talking to Standard Life I believe you can't back date payments. I've been steadily building up my EPP but would like to use savings/salary to add as much as I can into the personal plan which at the moment is small (15k)

Thanks