How much can I pay into my pension?

robc281274

I earn £7,800 per year in PAYE salary plus £50k+ in dividends.

I understand the maximum you can contribute to a personal pension plan his 100% of your earnings, up to an annual allowance of £50k.

My question is what constitutes "earnings"?

In my example, is the maximum I can pay in restricted to what I take in PAYE salary (£7,800) or do dividends count, thereby allowing me to make a larger contribution?

I have received conflicting advice re this.

Any help appreciated, thanks.

dunstonh

are the dividends from your "own" limited company?

Are you looking at just personal contributions or employer contributions?

xylophone

http://www.hmrc.gov.uk/manuals/remanual/re284.htm
http://www.scottishlife.co.uk/scotlife/Web/Site/Adviser/TechnicalCentralArea/Presimplification/PersonalPensionStake/RelevantandNetRelevantEarningsPage.asp
http://www.hl.co.uk/pensions/interactive-calculators/sipp-eligibility-guide
"Relevant UK Earnings - For most people relevant UK Earnings would be the amount of income you earn annually through employment. For example your salary before tax, or if you are self employed your taxable profit. It would not include, for example, interest from savings or dividends from shares".

Do these links cover your situation? Otherwise a call to HMRC should give you the definitive answer. http://search2.hmrc.gov.uk/kb5/hmrc/contactus/view.page?record=OILdX1VAnlM

robc281274

dunstonh - Yes the dividends are from my own limited company. All my contributions are made by the company.

Debt_Free_Chick

robc281274 wrote: »

dunstonh - Yes the dividends are from my own limited company. All my contributions are made by the company.

Simplest and, I believe, most tax efficient option is for the Company to pay £50k to your pension plan, before profits/divis calculated.

No tax for company or you. No NI for company or you. No issue with the contribution vs your PAYE earnings.

See if dunstonh (and/or others) agree

dunstonh

See if dunstonh (and/or others) agree

It was where I was heading with my questions

gadgetmind

robc281274 wrote: »

up to an annual allowance of £50k.

If you were in a pension scheme during the last three years, then you can also "carry forward" any unused allowances from those years.

robc281274

So basically the whole tax / net relevant earnings thing comes into play only if the money is paid out of the company first (whether it be by dividend or PAYE) and then I choose to put it in to my pension. But if the company makes the payment it can simply pay up to £50k even if my earnings were zero?

robc281274

Thanks all for your comments

Daniel_Elkington

See Jamesd below

jamesd

Daniel_Elkington wrote: »

Company contributions to a pension scheme are not limited as they are classed as a business expense and therefore your company does not pay corporation tax on them.

While it's true that they are unlimited, there will be a tax charge applied to the pension scheme member at their marginal tax rate on the amount over the £50,000 annual limit. This usually makes it sensible to respect the £50,000 limit.

See the annual allowance charge in the second example in RPSM06108120.

Daniel_Elkington wrote: »

You cannot personally make a pension contribution as dividends are not classed as 'relevant earnings'. You can make a company contribution to an unlimited amount and gain corporation tax relief on that contribution. For instance if you pay the 20% rate then that £50K in dividends could be paid by your company to a gross rate of £62.5K.

robc281274 would then be liable for a £2500 annual allowance charge, 20% of £12.5k, the amount in excess of £50,000 (assuming 20% marginal tax rate).

I suggest that robc281274 would be better off taking personal advice from an individual who would be obliged to pay redress for any errors in the advice given, say an IFA providing a professional service who can be taken to the FOS if they give incorrect advice.