Best way to contribute to SIPP from my LLP?

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Grazza21
Grazza21 Posts: 2 Newbie
edited 16 March 2018 at 2:56PM in Pensions, annuities & retirement planning
Hello,

I am wishing to pay profit from my LLP in which I am a partner with one other into my SIPP. The amount this year I want to contribute to my SIPP will be about 10k, and won't put me over the 40k limit for pension contributions this tax year (including contributions to another Personal pension from other employment). Can anyone tell me the most tax efficient way to do this with respect to NIC and Income Tax?

Is the way it's done to pay profit to myself, then pay into SIPP (getting 20% back), then pay NIC and income tax on self assessment and also claim any higher rate tax paid on contributions to SIPP?

Thanks,
Grazza

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  • Brynsam
    Brynsam Posts: 3,643 Forumite
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    Grazza21 wrote: »
    Hello,

    Is the way it's done to pay profit to myself, then pay into SIPP (getting 20% back), then pay NIC and income tax on self assessment and also claim any higher rate tax paid on contributions to SIPP?

    Yes. Make sure that the contribution comes from your personal bank account, not the partnership account, or the pension provider may treat it as an employer contribution and not claim the 20% tax on it. Unfortunately you can't be treated as an employee for pension purposes, so can't do anything about the NI element of your original earnings from the partnership.
  • dunstonh
    dunstonh Posts: 116,384 Forumite
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    Can anyone tell me the most tax efficient way to do this with respect to NIC and Income Tax?

    It doesnt matter in your case as LLP is treated the same as a normal partnersnhip. So, you are registered as self-employed with HMRC and pensions work the same way as self employed.

    It is important to make sure that if you pay the contribution from the company bank account, that it is treated as an employee/ self-employed contribution and not a company/employer contribution. An LLC is not treated the same way as a limited company.

    As for as tax/NI is concerned it makes no difference if you write the cheque from the company or yourself because you are registered as self-employed.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Grazza21
    Grazza21 Posts: 2 Newbie
    edited 16 March 2018 at 3:59PM
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    Thanks Brynsam and dunstonh, that's pretty much what I thought.. no salary sacrifice arrangement or similar possible?
  • Brynsam
    Brynsam Posts: 3,643 Forumite
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    Grazza21 wrote: »
    Thanks Brynsam and dunstonh, that's pretty much what I thought.. no salary sacrifice arrangement or similar possible?

    Correct. No.
  • dunstonh
    dunstonh Posts: 116,384 Forumite
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    Grazza21 wrote: »
    Thanks Brynsam and dunstonh, that's pretty much what I thought.. no salary sacrifice arrangement or similar possible?

    You are paying a different class of NI and pay your tax differently. How it works is different to an employee.

    As the contribution reduces your NI anyway, it doesnt need a salary sacrifice method.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Dazed_and_confused
    Dazed_and_confused Posts: 6,458 Forumite
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    Not had many dealing with LLP's and am curious how the pension payment will reduce the NI payable?
  • dunstonh
    dunstonh Posts: 116,384 Forumite
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    Dazed_and_confused wrote: »
    Not had many dealing with LLP's and am curious how the pension payment will reduce the NI payable?

    Because the person is classed as self-employed and not an employee. They pay class 4 NI and get pay their tax twice a year just as other self-employed.

    Unlike employees who pay class 1. Personal contributions are after tax and NI. Hence why salary sacrifice is beneficial.

    LLPs are a legal entity for liability issues but are self-employed/partnership for tax issues.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Dazed_and_confused
    Dazed_and_confused Posts: 6,458 Forumite
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    But how will the pension payment reduce the class 4 national insurance payable? Isn't that just based on the profit share and a personal payment wouldn't alter that would it?
  • dunstonh
    dunstonh Posts: 116,384 Forumite
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    edited 16 March 2018 at 9:22PM
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    Dazed_and_confused wrote: »
    But how will the pension payment reduce the class 4 national insurance payable? Isn't that just based on the profit share and a personal payment wouldn't alter that would it?

    I stand corrected. you are right. Sorry about that. My accountant will be giving me a slap on Monday when she sees this.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Dazed_and_confused
    Dazed_and_confused Posts: 6,458 Forumite
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    No problem, thought I might be missing a trick somewhere!
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