Hopefully a simple question about making pension contributio

[nickfrog]

Hello. I have a Ltd Company. It has made a 16k surplus profit last year that I haven't taken in dividend.

I'd like my Company to pay this money into a pension scheme in my name as an Employer's contribution. Surely this will reduce my corporation tax liability as it will be a Company's expense.

How do I go about doing this as we have nothing set up - I really don't care which pension provider we do it with as I just want to get rid of that money now or I will be dicking about for another 10 years.

Any decent providers you know of who offer this service ? (a Company pension scheme for the benefit of a Director)

Thanks a lot.

Nick

[nickfrog]

Thanks for all the advice - sadly we didn't pay it in time so we got to pay Corporation tax on the profit (same as dividend tax I assume) - the plan is indeed for this to become a regular Company expense moving forward. I have other pension schemes from previous PAYE jobs : is a SIPP the same thing ? I am not very good at picking investments and those schemes suit me as I just choose in broad lines where my money goes.

[nickfrog]

My wife (co director) saw a pension adviser today who came recommended impartially and he suggested to sack our accountants at once, which is what I have been saying for years...

[nickfrog]

Jockman said:

There is no harm in leaving retained profits in the Company rather than taking them out as Divis. We do it all the time.

Thanks and that's where I am very confused - I thought the Corporation tax was on all of a year's profit, whether we use it for Div payment or retain in the Company. I believe our accountant has made us pay Corp tax on that 16k.

My main problem with our accountants is that they can't explain themselves clearly and add loads of words that hide the important (simple) messages.

[nickfrog]

What's Div tax ? I understand it's already (and precisely) covered by the Corp tax. But because I don't understand much, this could be wrong.

[nickfrog]

So it's taxable yet will not attract ANY tax as the ltd cy has already paid it "for me" as Corporation Tax ?

BUT I can't get any fiscal pension benefit on that presumably ? (apart from getting the ltd cy to pay "in time" as it reduces the profit and therefore the CT liability)

[nickfrog]

FredClogs said:

I think you're referring to the dividend tax credit, which since April 2016 has been defunct.

Personally you now pay tax on dividends, you get the first £5k tax free, you pay 7.5% (basic rate), 32.5% (higher rate) and 38.1% (additional rate) on the rest.

As for YOUR pension contributions you will get the 25% government contribution (you can call this tax relief) if you're a non tax payer or basic rate tax payer and 40% if you're a higher rate tax payer.

For instance even if you pay no income tax i.e you earn below the allowance or are a child you still get the 25% tax relief on YOUR contributions.

Your employers contributions attract no tax relief but it is an expense to the company, so no Corp Tax will be paid on that £100, so you would save £20 if you otherwise just left it in the company as retained profit, or possibly more if you otherwise paid it as a divi because YOU may have to pay divi tax on it.

So if your employer contributes £100pcm and you contribute £100 you will have £225pcm to invest within your SIPP (or £240pcm if you're a higher rate tax payer).

Fred, thank you so much. Sadly those explanations are going to take a while for me to understand.

I know what SIPP stands for but I don't know what it means - I currently have both private pension schemes and previous employer schemes where I roughly choose my level of risk and they do the rest : is that a SIPP ? If not, I don't think I want a SIPP. I'd like the same thing as I have. Does that change anything ?

[nickfrog]

Thanks - sounds very much like a pension fund. I don't understand the difference between a SIPP and what I currently have. What I currently have is a personal pension plan opened 20 years ago and x2 funds from my last 3 PAYE employers, 2 of them with Scottish Windows and 1 of them with another provider when I worked with AIG. If a SIPP is different, what's the benefit ?

[nickfrog]

I understand far less now than (I thought) I did before this thread. I am very tempted to spend £250 or whatever to get an adviser to start from scratch as if I was a 12 year old.
Is it a way for the industry to protect itself ?

[nickfrog]

Ginge R said:

Gut instinct, if you're going to buy a SIPP, then at least be able, ready and willing to use it properly. If not, don't bother. SIPPs aren't bad at all, but for most people who have them, they're needlessly expensive and complex, and are packed with unused functionality that is never used. Setting one up is a doddle, but how are you going to manage it?

Consider instead, a modern, bog standard personal pension. Most PPs these days with good and decently managed funds in the region of 25k, should cost c0.5%. If you have an old PP and assorted waifs and straifs there's a plausible case to consider consolidating them.

Thanks - I really don't want a SIPP as I don't understand the difference between a SIPP and a personal pension plan. I do not want to make my own detailed investment decision anyway, not a clue nor time for that.

But then again, the contributions are from my employer NOT from from me so a personal pension doesn't work does it ? I thought my Ltd Cy needed to open a specific plan to make contributions in it for my benefit ? Or did I get this wrong too ?

[nickfrog]

Thanks ! Good to hear that any old PP will work as the vehicle for my Ltd Cy to pay into it. Makes it simple.

[nickfrog]

Jockman said:

Check with your Provider.

Will do - I have now engaged a Fin Adv - costing me a little upfront fee but clearly solid advice. We can't get retrospective relief on the moneys we have paid CT on as I have not earned enough over the past 4 years in non-dividend (only £34k of PAYE income over 4 years, but I believe it would have needed to be over £40k)