Working Tax Credits & Pension contributions paid through own Ltd Company

cmn0802

Hi

I'm in the process of making my first claim for Working & Child tax credits.

In the the notes it mentions that you can deduct from your income any amounts paid as personal pension contributions.

I am the sole director of my own Ltd company, and make pension payments directly from the company to a personal pension scheme, these amounts aren't reflected in the payroll anywhere, just deducted from the companies profits.

So my question is, do these contributions count for me to be able to deduct them from my income on the tax credits form?

Thanks for your help

zagfles

This will probably be OK but I'd write to TCO explaining it and getting them to confirm.

Problem might be that there are notional income rules which can come into play for your type of situation, ie director of own ltd company, to stop the sort of abuses such as keeping all of the profit in the company, or "paying" yourself with director's loans, and similar. Basically they state if you work for less than "full earnings" you can be treated as having those earnings. See http://www.hmrc.gov.uk/manuals/tctmanual/TCTM04800.htm

But, as you're effectively sacrificing salary for pension, the above might not apply, as they seem to now be allowing that, for normal employees anyway. A year or so ago they were very cagey about salary sacrifice even for pension.

The totally safe way to do this would be to pay yourself a full wage, and make normal pension contributions through your "payroll" or personally from net income (with the pension provider claiming tax relief). You can then deduct the gross contributions from the amount you declare. But of course this way you don't save NI.

I'd suggest writing to them and see what they say, then at least you've got written confirmation that what you're doing is OK. Better than getting a massive repayment demand after a few years!