Pension for a Company Director

danjourno

Hi,

I've been reading the advice on pensions on MSE.
http://www.moneysavingexpert.com/savings/discount-pensions

Since i'm a company director, I am paid up to the NI threshold and the rest is paid to me as a company dividend.

In that event, am I correct in saying that I have almost no UK taxable earnings since the tax on the dividends are already paid by the company?

I've chosen to go through Cavendish however all the pensions have the following condition:-
The maximum amount you can pay into your registered pension schemes in any tax year is 100% of your UK taxable earnings. (Maximum for a non- earner is £2880 net (£3600 gross)).

This seems to mean that I can't pay into a pension because I don't really have any taxable earnings (unless the dividend is included)

Being a company director, whats the best way for me to pay into a pension? Should my company make pension payments to save on National Insurance?

Thanks
Dan

Zelazny

I'm not an expert, but as far as I know there's no cap on Employer contributions to a pension scheme, so if your company made the payments there would be no limit.

dunstonh

Your limit is £50,000 as long as the company can reasonably afford it and in case you are not the primary worker, the contribution should be relative to the role you do. There is interpretation there and no hard and fast rule as it is left to the discretion of the local tax inspector. However, if you are the primary earner you should be fine. It is really to stop people putting in large amounts for non-working spouses who are also directors (which is still possible but with caution).

Should my company make pension payments to save on National Insurance?

Usually the best way.

System

dunstonh wrote: »

Your limit is £50,000

And complicated rules for I think this year only allowing carry-forward of unused allowances from earlier year(s) ?
Our accountants and IFA managed to justify £150,000 last year and £100,00 this. That's for in-specie contributions into a property SIPP.

richbeth

danjourno wrote: »

Hi,

I've been reading the advice on pensions on MSE.
http://www.moneysavingexpert.com/savings/discount-pensions

Since i'm a company director, I am paid up to the NI threshold and the rest is paid to me as a company dividend.

In that event, am I correct in saying that I have almost no UK taxable earnings since the tax on the dividends are already paid by the company?

Hi,
re pensions, my wife is in the same position and we do what the other responses have said and pay employer contributions into a SIPP.

re tax, if your income exceeds the higher rate tax boundary you will need to submit a tax return and tax will be due as dividends only credit you tax at the basic rate. IIRC your dividends are grossed up to work out your income

E.g. if you pay yourself £1k pm salary thats £12k pa leaving ca£30k pa of basic rate tax. So dividends of over £24k net are equivalent to £30k gross. Therefore if you're taking a £1k salary and more than £2k dividends pm (£24k/12) you will be liable for tax at the higher rate (32.5% for dividends) on anything over that.

Your accountant is the best person to speak to about this as they know the details of your individual circumstances and such advice is normally covered by your annual fee.

I hope that makes sense !
Richard

System

You don't get personal tax relief on employer contributions of course. But they are tax-deductable by the company. You need to watch which company year they fall in, which won't necessarily be the fiscal year or your pension contribution year.
Interestingly, employer contributions are always treated as revenue expenditure, even if in fact large payments out of capital.

martinsurrey

danjourno wrote: »

Hi,


In that event, am I correct in saying that I have almost no UK taxable earnings since the tax on the dividends are already paid by the company?

Thanks
Dan

Here is the mistake you've made.

Dividends are taxable in your tax return, so they are taxable income for you.

the company pays corporation tax, then dividend all/some of the rest to you, you then pay income tax on them, as they are taxable income, you can pay them into a pension and get tax relief on them (up to limits mentioned above).

gadgetmind

You can only pay up to your "Relevant UK Earnings" into a pension, and neither dividends on share nor savings interest count towards this. which is a crying shame.

System

gadgetmind wrote: »

You can only pay ....

That's the point about employer contributions. "You" are not paying, and the employer can pay any amount up to the £50,000 limit, or whatever, as long as it can be justified as necessary for the business of which you are a present or past employee or director. Earnings don't come into it.

gadgetmind

Clifford_Pope wrote: »

Earnings don't come into it.

Agreed, I just wanted to correct the statement that someone can put dividend income into a pension.

Of course, if I'm wrong, and if income from dividends and interest can go into a pension and get tax relief, my wife's pension is in for a boost!