Company Director and maximised pension contributions.

[98elise]

I'm a contractor and for a few years didn't make any pension contributions (but had a number of active pensions).

I built up some cash in the company over a few years, but now l'm looking to maximise pension contributions as I'm in my 50's

I know I can use the carry forward rules for the previous 3 unused years of allowances, but are there any restrictions on what I can pay in based on salary/dividends drawn? I know this is the case for employee contributions.

They are company contributions rather then personal contributions.

[PurpleMoonlight]

Yes, if your income exceeds £150,000 for the tax year your annual allowance starts to be restricted. It applies only restricts the annual allowance for the tax year in question, and only from 2016. Income is broadly everything on your tax return.

The carry forward principle is not affected by the restriction, save for the lower allowance that can be carried forward.

[Eric Mc]

PurpleMoonlight said:

Yes, if your income exceeds £150,000 for the tax year your annual allowance starts to be restricted. It applies only restricts the annual allowance for the tax year in question, and only from 2016. Income is broadly everything on your tax return.

The carry forward principle is not affected by the restriction, save for the lower allowance that can be carried forward.

Are you talking about the normal Personal Tax Allowance or the Annual Pension Contribution Allowance?

[JulianPH]

Eric Mc said:

Are you talking about the normal Personal Tax Allowance or the Annual Pension Contribution Allowance?

Purple is talking about the annual pension contribution allowance.

[PurpleMoonlight]

[98elise]

PurpleMoonlight said:

Yes, if your income exceeds £150,000 for the tax year your annual allowance starts to be restricted. It applies only restricts the annual allowance for the tax year in question, and only from 2016. Income is broadly everything on your tax return.

The carry forward principle is not affected by the restriction, save for the lower allowance that can be carried forward.

No danger of my income exceeding 150k

[JulianPH]

PurpleMoonlight said:

[JulianPH]

98elise said:

I'm a contractor and for a few years didn't make any pension contributions (but had a number of active pensions).

I built up some cash in the company over a few years, but now l'm looking to maximise pension contributions as I'm in my 50's

I know I can use the carry forward rules for the previous 3 unused years of allowances, but are there any restrictions on what I can pay in based on salary/dividends drawn? I know this is the case for employee contributions.

They are company contributions rather then personal contributions.

You technically have £120,00 of availability (minus anything already paid in) for pension tax relief (as you had an existing pension for the three year period).

As these will be company contributions (rather than personal ones) I don't think you are limited to the Net Relevant Salary rues. Someone who knows more about this than me will be along soon!

Purple???

[98elise]

JulianPH said:

98elise said:

I'm a contractor and for a few years didn't make any pension contributions (but had a number of active pensions).

I built up some cash in the company over a few years, but now l'm looking to maximise pension contributions as I'm in my 50's

I know I can use the carry forward rules for the previous 3 unused years of allowances, but are there any restrictions on what I can pay in based on salary/dividends drawn? I know this is the case for employee contributions.

They are company contributions rather then personal contributions.

You technically have £120,00 of availability (minus anything already paid in) for pension tax relief (as you had an existing pension for the three year period).

As these will be company contributions (rather than personal ones) I don't think you are limited to the Net Relevant Salary rues. Someone who knows more about this than me will be along soon!

Purple???

That was my belief but had a sudden serious doubt that I could effectively make use of the carry forward rules unless I paid myself a large salary as well.

[Jockman]

98elise said:

That was my belief but had a sudden serious doubt that I could effectively make use of the carry forward rules unless I paid myself a large salary as well.

Do not do this. Keep your threshold income below £110,000. This excludes Employer Pension Contributions.

[tighnamara]

JulianPH said:

You technically have £120,00 of availability (minus anything already paid in) for pension tax relief (as you had an existing pension for the three year period).

As these will be company contributions (rather than personal ones) I don't think you are limited to the Net Relevant Salary rues. Someone who knows more about this than me will be along soon!

Purple???

I am sure the company also has to show profit to pay the funds from the existing year not from the time you were back dating.

[Jockman]

tighnamara said:

I am sure the company also has to show profit to pay the funds from the existing year not from the time you were back dating.

You alluding to retained earnings or simply profit for the current year?

[98elise]

Jockman said:

98elise said:

That was my belief but had a sudden serious doubt that I could effectively make use of the carry forward rules unless I paid myself a large salary as well.

Do not do this. Keep your threshold income below £110,000. This excludes Employer Pension Contributions.

I don't have the cash to pay both hence my concern. I pay myself enough to live on, which leaves a lot I can use for pension planning.

[tighnamara]

Jockman said:

You alluding to retained earnings or simply profit for the current year?

Profit for the company financial year the pension payment is made.
I may be totally wrong and Eric Mc or someone with more knowledge would be able to clarify.

[PurpleMoonlight]

As a Director there does not need to be a reasonable association between salary and pension contributions, so you can have small salary and big pension contributions.

The maximum you can pay this tax year is £160,000 (4 x £40,000) assuming no pension contributions already made.

Pension contributions can create a trading loss in the trading year but you obviously need the physical cash to pay it.

[tighnamara]

PurpleMoonlight said:

As a Director there does not need to be a reasonable association between salary and pension contributions, so you can have small salary and big pension contributions.

The maximum you can pay this tax year is £160,000 (4 x £40,000) assuming no pension contributions already made.

Pension contributions can create a trading loss in the trading year but you obviously need the physical cash to pay it.

Ok, was not aware of the pension payment being allowed to show a trading loss.

This is what I have on record from accountant way back...

"One over riding factor to consider here however is that there is another limit if the contribution is being made by a company. This limit is that the pension amount paid must be funded from the profits in the year the contribution is made, not the years in which it could have been made.
If you exceed this limit and create a trading loss you run the risk that HMRC will both disallow the contribution or part of it for corporation taxes, and will also add the disallowed amount on to your personal income for that year and collect additional income tax from this.
To contribute in the current year to Oct XX you need to be pretty sure that the profits for the year to Oct XX will be sufficient to support the contributions you are making"

[PurpleMoonlight]

tighnamara said:

Ok, was not aware of the pension payment being allowed to show a trading loss.

This is what I have on record from accountant way back...

"One over riding factor to consider here however is that there is another limit if the contribution is being made by a company. This limit is that the pension amount paid must be funded from the profits in the year the contribution is made, not the years in which it could have been made.
If you exceed this limit and create a trading loss you run the risk that HMRC will both disallow the contribution or part of it for corporation taxes, and will also add the disallowed amount on to your personal income for that year and collect additional income tax from this.
To contribute in the current year to Oct XX you need to be pretty sure that the profits for the year to Oct XX will be sufficient to support the contributions you are making"

They are being overly cautions.

You could have £500,000 retained profits in the bank, but only £10,000 profit this year.

[tighnamara]

PurpleMoonlight said:

They are being overly cautions.

You could have £500,000 retained profits in the bank, but only £10,000 profit this year.

Ok, perfect thanks for that information.

[98elise]

PurpleMoonlight said:

As a Director there does not need to be a reasonable association between salary and pension contributions, so you can have small salary and big pension contributions.

The maximum you can pay this tax year is £160,000 (4 x £40,000) assuming no pension contributions already made.

Pension contributions can create a trading loss in the trading year but you obviously need the physical cash to pay it.

Thanks, that's what I hoped was the case.

[anonymous-user]

98elise said:

Thanks, that's what I hoped was the case.

But don't be surprised if HMRC pop round for a chat and a look at your books......