100% of salary to pension?

[silentbrown]

As a director of a Ltd Co, I draw a nominal salary of £12k/pa and take rest of 'pay' via dividends.

I was under the impression that you can contribute 100% of salary to a pension. so I've been adding £1K/month to a personal pension fund. I can't put more in because dividends don't count as salary.

Is this right? Or is it meant to be "100% of salary, after deducting PAYE and NIC"? If so, how the hell do you calculate it??

[fellatthefirst]

You can just pay money into your pension from your company and it comes off your profits. Nothing to do with your personal PAYE or dividends... it’s a bit of a no brainer to do really as long as you have the cash flow to pay the money into a pension.

[silentbrown]

fellatthefirst said:

You can just pay money into your pension from your company and it comes off your profits. Nothing to do with your personal PAYE or dividends... it’s a bit of a no brainer to do really as long as you have the cash flow to pay the money into a pension.

Yup, aware of that. There are reasons that's not appropriate right now, so I still need to know

[PurpleMoonlight]

Yes, you can contribute your total gross PAYE income, provided your maximum contribution it is not restricted to less than that due to taper relief or the money purchase annual allowance.

[silentbrown]

PurpleMoonlight said:

Yes, you can contribute your total gross PAYE income, provided your maximum contribution it is not restricted to less than that due to taper relief or the money purchase annual allowance.

Thanks. That's what I thought, but I'm getting conflicting advice: Apparently I'm putting in £1K, and the pension provider claims back 20% from HMRC, taking the "gross contribution" to £1250, which is more than my £1000 gross income.

[LeoSayer]

There are a few reasons not to pay 100% of your salary into a pension.

You'll be paying yourself less than minimum wage.
You won't be paying NIC - affecting State Pension entitlement
On £12k of salary there's no tax paid to reclaim on the contribution

[silentbrown]

LeoSayer said:

1: You'll be paying yourself less than minimum wage.
2: You won't be paying NIC - affecting State Pension entitlement
3: On £12k of salary there's no tax paid to reclaim on the contribution

1: I'm a director
2: I'm paying into the fund personally, not via the company, so NICs are already paid on my salary.
3: ... is where it gets complex: On the one hand you could say I'm paying almost no tax on the £12K because it's mostly below the personal allowance. On the other hand as a higher rate taxpayer I'm really paying 40% tax on it...

[chrisch77]

Just let your tax return sort it out at the end of the year?

The tax return calculation will take into account any basic rate tax relief you might have been given on the pension contributions you are making, allowing for your actual tax allowance (I.e.after other income like your dividends that you say are pushing you into higher tax band).

Chris

[PurpleMoonlight]

silentbrown said:

Thanks. That's what I thought, but I'm getting conflicting advice: Apparently I'm putting in £1K, and the pension provider claims back 20% from HMRC, taking the "gross contribution" to £1250, which is more than my £1000 gross income.

Yes, I think you should be contributing £800 pm when with tax relief added will be £1000 pm.

Contributions work on tax years though so you can balance it out by no contributions for two months if needs be.

I appreciate you haven't paid the tax in the first place. It's a quirk of the relief at source system.

[Tim330]

You can pay up to £40,000/pa direct from your company as a tax deductible expense. A payment from the company is not limited to 100% of your salary. Suggest you check with your accountant

https://www.sjdaccountancy.com/resources/financial...

[LeoSayer]

silentbrown said:

3: ... is where it gets complex: On the one hand you could say I'm paying almost no tax on the £12K because it's mostly below the personal allowance. On the other hand as a higher rate taxpayer I'm really paying 40% tax on it...

Sorry, you've lost me.

Do you have another source of taxable income? Where does HRT come into it?

[anonymous-user]

silentbrown said:

fellatthefirst said:

You can just pay money into your pension from your company and it comes off your profits. Nothing to do with your personal PAYE or dividends... it’s a bit of a no brainer to do really as long as you have the cash flow to pay the money into a pension.

Yup, aware of that. There are reasons that's not appropriate right now, so I still need to know

Hiding it from wife?

[tighnamara]

silentbrown said:

LeoSayer said:

1: You'll be paying yourself less than minimum wage.
2: You won't be paying NIC - affecting State Pension entitlement
3: On £12k of salary there's no tax paid to reclaim on the contribution

1: I'm a director
2: I'm paying into the fund personally, not via the company, so NICs are already paid on my salary.
3: ... is where it gets complex: On the one hand you could say I'm paying almost no tax on the £12K because it's mostly below the personal allowance. On the other hand as a higher rate taxpayer I'm really paying 40% tax on it...

Would it not be easier to pay into your pension directly from the Limited Company ?

[silentbrown]

LeoSayer said:

Do you have another source of taxable income? Where does HRT come into it?

Dividends, as mentioned at the start.

[silentbrown]

Badda said:

Hiding it from wife?

No. Just that there's more than one director so I can't do that unilaterally. It's a good idea but one for another day.

[LeoSayer]

What's your objective?

[Trophy Husband]

Tim330 said:

You can pay up to £40,000/pa direct from your company as a tax deductible expense. A payment from the company is not limited to 100% of your salary. Suggest you check with your accountant

https://www.sjdaccountancy.com/resources/financial...

^^^^This. It is what we do.

[red_slr]

You can top up using previous years too... if not already used it all.

[troika]

LeoSayer said:

There are a few reasons not to pay 100% of your salary into a pension.

You'll be paying yourself less than minimum wage.
You won't be paying NIC - affecting State Pension entitlement
On £12k of salary there's no tax paid to reclaim on the contribution

1. Pay dividends instead after the company has paid upto £40K per annum into your pension
2. You only need to pay a salary above the lower earnings level (currently £6032) to have a qualifying NI year. You only actually start paying NI if you draw a salary above the primary threshold (currently £8,424).
3. Not relevant because the company contribution has corp tax relief.