limited company pension

eve31

I am a bit confused about pension contributions via ltd company or via salary.

Linton

eve31 wrote: »

I am a bit confused about pension contributions via ltd company or via salary.

If I pay myself a small salary of £12,000 and a dividend of £10,000 can I put £13,000 into a pension from my salary and dividend? If not does anyone know the reasons why?

many thanks

You only get tax relief on earned income going into a pension. Dividends arent "earned". So the most you can put in is £12K.

You could avoid this by paying yourself a company pension.

xylophone

http://www.taxation.co.uk/taxation/Articles/2013/04/17/305801/pension-problem

might be of interest.

dunstonh

Normally it is better for directors to pay into the pension via the company. you reduce corporation tax and NI, you get money out of the business tax free and you are not constrained by your income level (but annual allowance does apply)

eve31

Would you get tax relief on the £12,000 but not on the extra £1000? I have read a lot that pension contribution shouldn't exceed earned income but can you still do but it's just not tax efficient?

I am trying to understand this due to an issue with child maintenance. I am sure that my ex partner pays his pension contribution via his ltd company. But he is saying the £13,000 pension is paid via his £12,000 salary and child maintenance has approved this. It makes no sense and they told me they don't believe him but can do nothing. Would the source of the pension contribution show up on hmrc as paid via ltd company or earned income?

Any help is very much appreciated. I am not a vindictive ex in any sense just struggling to provide for two teenager daughters. Thanks.

jamesd

That's right, you wouldn't get tax relief on the extra £1,000. You'd tell HMRC and they would take that back from you. However, he might be meaning that the £13,000 is paid directly by the firm in addition to the £12,000 and that would be fine for tax and he sensible way to do it.

Yes, the type of pension payments shows up on pension statements. If it's done by the employer directly it shows up as an employer contribution. If it's done by the employee it shows up as an employee contribution.

A statement from the pension firm of the source of payments paid in should clarify things. Or bank statements for the firm and him.

If you are owed money you may be able to apply to your local county court for an "order to obtain information". You can do this to help to enforce a CCJ. Not sure about maintenance payments, ask the court, they will probably be friendly and helpful if you call them. You give them a laundry list of documents and information that you want from him and he's obliged to provide it. You can seek third party orders that instruct a bank or pension company to provide information. Unlike him, they won't dodge, just comply once they get their order.

eve31

That is so helpful. Thanks very much.

However, he might be meaning that the £13,000 is paid directly by the firm in addition to the £12,000 and that would be fine for tax and he sensible way to do it./QUOTE] What is the difference between him doing the above and claiming he pays himself £12,000 but that is wiped out by the £13,000 that he pays out of his salary. He has specifically told child maintenance that he pays pension from his salary that he pays himself and not from company.

I know child maintenance have no powers to question or investigate if someone gives misinformation and just accept it and the onus is on me to provide proof and being tax and accounting illiterate it seems impossible so the help I am given here really makes a big difference.

I will look into the 'order to obtain information'.

many thanks

eve31

Would the pension statement be only available to him or would hmrc be able to identify employer or employee contribution? thanks again.

jamesd

HMRC would have the information needed because in the employee case they would have paid the basic rate income tax rebate to the pension company.

TheTracker

As Dustonh said above, the LtdCo can make a pension contribution of up to 40000 per annum, regardless of the distributed salary. One can carry this back 3 years, so feasibly a £120k contribution. I wouldn't say this is "manipulation", it is a standard and legal practice.

Have you tried searching the company name on DueDil.com? You can see summaries for free and buy deeper reports cheaply. Certainly his submitted accounts will show the pension contributions (totalled for all employees), but I'm not sure if this is abbreviated in public records as total expenses. Even if he has had such pension contributions I'm not certain it would help you, the company is its own entity and you can't force it to distribute money in other ways, even if he is the sole director.

The free report will show the net assets of the company and all shareholders and directors, so if it is solely owned by him you can show a net worth. Accounts need to be submitted by 9 months after year end so it could be up to 21 months out of date, and likely 10+ months out of date. The company can also own other companies or be owned by other companies which obscures traceability (as seen with Amazon and Starbucks in the news).

Funds could also be obscured through taking cash through his Directors Loan Account and waiting until the case blows over before settling accounts.

He could be selling assets to the company and being rewarded in cash, typically items like computer equipment, cars, furniture, etc.

These are legal means to reduce tax exposure and you'd struggle to prove he was doing it to avoid maintenance.

Your wider family's employment in his company may also be counterproductive. If he was the sole revenue earner and sole director and sole salary earner then HMRC may deem his company a personal services company under IR35 and not able to enjoy many of the tax efficiencies, instead being treated as PAYE. It seems odd to me that your family works for him. If you are on speaking terms and they are aware of the situation then I'm unsure why they are supping with your devil.

What you'd really like are his LtdCo full accounts for the year end. I'm unaware of whether you personally can demand these in such a circumstance but perhaps the CSA has the right.

I have great sympathy for you. But I hold a touch of concern for the opposing party - there is no clear equitable solution that a formula will spit out for a company owner and his eventual income, as it may not be realised for many years and is at risk in the meantime. As a result he is probably protecting his company value like Smaug. I wish there was an answer but it's difficult to see what it is.

atush

While everything he is doing is legal to avoid tax, reducing his salary on purpose to short change his own child/children is very questionable morally.

Do go forwards with your orders for information. Contact CAB for some free advice as well?

Eventually, if the maintenance bit goes to mediation/court, the value and income of his ltco will come up.

Even more so, had you been married to your ex partner this would all come up even more quickly. And yet again, I will point out (and bang on I know) that you should be married if you have children. It isn't a question of morals or religion but more a contractual/legal one.

To protect children in these types of situations. AS it is harder for them to shirk their duties if they have to split assets with the mother (or father occasionally) of their children when they part.