Pension contribution choices for director
Discussion
Before I ask my accountant I thought I'd try and get some basic understanding of choices, and of course - advice from you guys 
Currently have a pension (worth very little) that I haven't paid into for 5+ years (been maxing S&S ISA instead) but thinking might start dropping a bit more into the pension *if* there is any tax benefits to it. I take a small salary (approx 8k) and rest in divi's but not enough to take me into a higher tax-bracket. I understand there are various ways of doing this - either make the payments via personal or company? Lots of questions I could ask but would appreciate any advice you guys have. Thanks
Currently have a pension (worth very little) that I haven't paid into for 5+ years (been maxing S&S ISA instead) but thinking might start dropping a bit more into the pension *if* there is any tax benefits to it. I take a small salary (approx 8k) and rest in divi's but not enough to take me into a higher tax-bracket. I understand there are various ways of doing this - either make the payments via personal or company? Lots of questions I could ask but would appreciate any advice you guys have. Thanks
PurpleMoonlight said:
Just make company pension contributions. It is an expense of the business for corporation tax purposes.
The earliest you can get your hands on the pension fund is currently age 55.
Cheers. Wishing I'd of continued contributing when I was a 40% tax payer but hey ho! Obviously situations and circumstances can change but doubt I would take the pension at 55 - probably 60 which is in approx 19yrs.The earliest you can get your hands on the pension fund is currently age 55.
Would for example a 10k lump sum contribution take me into the higher rate tax-bracket if I have *already* taken a 8k salary and 35k dividends?
Is there a limit to how much the company can put in and if there are 2 directors would you need to also do the same for director 2 (wife - who doesn't currently have any pension scheme).
Thanks again
The company pension contribution does not form part of your income for income tax assessment.
The maximum contribution allowance is £40,000 per tax year, plus any unused allowance from the previous three tax years.
Your contribution is not dependent on contributions for other directors.
The maximum contribution allowance is £40,000 per tax year, plus any unused allowance from the previous three tax years.
Your contribution is not dependent on contributions for other directors.
Edited by PurpleMoonlight on Thursday 14th July 16:05
PurpleMoonlight said:
The company pension contribution does not form part of your income for income tax assessment.
The maximum contribution allowance is £40,000 per tax year, plus any unused allowance from the previous three tax years.
Your contribution is not dependent on contributions for other directors.
Brill. Thanks PurpleMoonlight The maximum contribution allowance is £40,000 per tax year, plus any unused allowance from the previous three tax years.
Your contribution is not dependent on contributions for other directors.
The maximum contribution limits are the same for everyone and, setting aside auto enrolment, there is no minimum or maximum frequency.
However, for 'ordinary' employees HMRC expect pension contributions to be commensurate to salary. So an £8000 salary and a £40,000 pension contribution might be considered inappropriate by HMRC and corporation tax relief limited accordingly. It is therefore normally recommended that the pension contribution does not exceed salary. Note, this does not apply to Directors.
However, for 'ordinary' employees HMRC expect pension contributions to be commensurate to salary. So an £8000 salary and a £40,000 pension contribution might be considered inappropriate by HMRC and corporation tax relief limited accordingly. It is therefore normally recommended that the pension contribution does not exceed salary. Note, this does not apply to Directors.
Are there any benefits for the individual (director - non high rate taxpayer) of a 15k lump sum pension contribution from the company over a S&S ISA - paid for out of personal money? I'm trying to work out, if you could only do one, which is the most attractive investment for approx 15k per year (20k (ISA Allowance) as from next year). I guess the answer is to do both, but some years might not allow this.
Phooey said:
Are there any benefits for the individual (director - non high rate taxpayer) of a 15k lump sum pension contribution from the company over a S&S ISA - paid for out of personal money? I'm trying to work out, if you could only do one, which is the most attractive investment for approx 15k per year (20k (ISA Allowance) as from next year). I guess the answer is to do both, but some years might not allow this.
If I am reading this right - are you talking about choosing an additional £15k out of the company to pay yourself personally (via dividends) or straight to pension as a lump sum?If so - as you are already taking £35k of dividends then an extra £15k paid personally to you will push you in to 32.5% tax band for dividends, whereas that £15k into your pension (I assume SIPP?) will not attract any tax deductions so this method would be better.
Liggle said:
If I am reading this right - are you talking about choosing an additional £15k out of the company to pay yourself personally (via dividends) or straight to pension as a lump sum?
If so - as you are already taking £35k of dividends then an extra £15k paid personally to you will push you in to 32.5% tax band for dividends, whereas that £15k into your pension (I assume SIPP?) will not attract any tax deductions so this method would be better.
Sorry, I should of said already contributing 15k year into ISA - which comes out of my salary (8k basic + 35k div's) so no I wouldn't be paying myself additional to attract the 32.5% tax. If funds permit I will consider doing both - continuing to max my ISA and a lump sum into pension now I know it won't attract any personal tax or push me into higher rate tax bracket. Obviously situations can change and might not have funds to put into pension AND ISA... So gut feeling says ISA is preference over pension, to me. I need to talk to my accountant and consider the new 7.5% div's tax..If so - as you are already taking £35k of dividends then an extra £15k paid personally to you will push you in to 32.5% tax band for dividends, whereas that £15k into your pension (I assume SIPP?) will not attract any tax deductions so this method would be better.
PurpleMoonlight said:
The maximum contribution limits are the same for everyone and, setting aside auto enrolment, there is no minimum or maximum frequency.
However, for 'ordinary' employees HMRC expect pension contributions to be commensurate to salary. So an £8000 salary and a £40,000 pension contribution might be considered inappropriate by HMRC and corporation tax relief limited accordingly. It is therefore normally recommended that the pension contribution does not exceed salary. Note, this does not apply to Directors.
THANK YOU PurpleMoonlight. I will give some of them some money then. it just seemed preferable as an extra reward for working well, outside of any usual salary/bonus system.However, for 'ordinary' employees HMRC expect pension contributions to be commensurate to salary. So an £8000 salary and a £40,000 pension contribution might be considered inappropriate by HMRC and corporation tax relief limited accordingly. It is therefore normally recommended that the pension contribution does not exceed salary. Note, this does not apply to Directors.
Phooey said:
PurpleMoonlight said:
They should be able to but check with your personal pension provider.
Cheers. Accountant is checking but seems to think it needs to be a 'company' pension scheme for direct payments from company.There were no issues at all in company contributions going into these PPs.
Yes. This should be fine.
Just keep the evidence that you pay direct from the company account to your personal pension, and make sure you do it each year before the end of the company accounting period (or set up monthly perhaps). It should show up in your pension as an employer payment too. All the pension providers should all allow this.
This way you don't have any personal tax liability until you draw from your pension, and the company reduces it's Corporation tax liability, as it is a percentage of profit.
Just keep the evidence that you pay direct from the company account to your personal pension, and make sure you do it each year before the end of the company accounting period (or set up monthly perhaps). It should show up in your pension as an employer payment too. All the pension providers should all allow this.
This way you don't have any personal tax liability until you draw from your pension, and the company reduces it's Corporation tax liability, as it is a percentage of profit.
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