SIPP contribution from company

rtaylorman

I have a company and I have a SIPP. I haven't paid anything into my SIPP for many years but I would like to put in a lump sum. My company is on course to make over 120K in profit this year and I am wondering if instead of paying a dividend I could instead make a company pension contribution to my SIPP. I think there is a limit of £40K that you can pay into a SIPP, but does that apply to company contributions, or can the company pay in more because neither I or the company has made any contributions into my SIPP in recent years?

jamesd

The limit is on all contributions to a pension in your name whoever makes them. You can use carry forward of unused annual allowance from the past three years if you were in any pension scheme, and you were because of your existing SIPP.

The annual allowance levels were:

2012-13: 50k
2013-14: 50k
2014-15: 40k
2015-16: 40k

So this year you can have pension contributions of up to £180k if you made no contributions in the last three tax years.

rtaylorman

If the company can pay 120K in the current year, can it all be treated as 'catch up' payments for previous years starting with the oldest year? E.g.:
2012-13: 50k
2013-14: 50k
2014-15: 20k / 20K unused
2015-16: 0k / 40K unused

So that next year if the company can afford it, there is scope to contribute up to £100K (£40K for that year plus still 60K unused). Or can it be only £40K a year thereafter?

jamesd

It uses current year first then it starts using oldest unused. So 120k would use all of 2015-16, all of 2012-13 and 30k of 2013-14.

For 2016-17 you'd have that years' 40k plus 20k from 2013-14 and 40k from 2014-15 allowing a total of 100k.

The business is also allowed to borrow to pay money. This can be used to make tax free returns of capital to the business owners. Say owners put in 100k to buy buildings, the business can repay that tax free to the owners at any time, including by borrowing money to do it. The appreciation in value of the property doesn't count, that would be taxable if withdrawn - though it could be paid into a pension, of course. Discuss the specifics with your accountant if this paragraph interest you.

rtaylorman

jamesd wrote: »

It uses current year first then it starts using oldest unused. So 120k would use all of 2015-16, all of 2012-13 and 30k of 2013-14.

For 2016-17 you'd have that years' 40k plus 20k from 2013-14 and 40k from 2014-15 allowing a total of 100k.

The business is also allowed to borrow to pay money. This can be used to make tax free returns of capital to the business owners. Say owners put in 100k to buy buildings, the business can repay that tax free to the owners at any time, including by borrowing money to do it. The appreciation in value of the property doesn't count, that would be taxable if withdrawn - though it could be paid into a pension, of course. Discuss the specifics with your accountant if this paragraph interest you.

I will! Thank you. This is meaty stuff!

jamesd

For more on the withdrawing capital and borrowing subject you might like to have a read of BIM45700 and related pages.

You might also find BIM45685 of interest, since it explains that it is irrelevant that a loan is secured on your own home in determining whether the interest on the loan is a deductible expense. What matters is that it is for a business purpose. So you could, say, do something like asking for a further advance on a mortgage on your own home to allow the business to repay you capital that you provided to the business. Because this is a business purpose the interest on the increased mortgage would be deductible as a business expense. As before, this is something you should discuss with your accountant before doing it because it's quite easy to screw it up and end up with non-deductible borrowing instead.

rtaylorman

Very useful! Thank you again.

brizza

Be careful with a large one off payment. On the assumption that you've got an owner managed business situation, your salary package should be equivalent to a reasonable market rate. This is, obviously, difficult to quantify in practice - but suddenly putting through a significant pension payment which isn't in keeping with recent years could raise HMRC's interest.

The deemed excess portion of the package would not attract corporation tax relief, which changes the efficiency quite a bit.

It may be worth spreading the pension payments over the coming few years instead of putting though a six figure payment right now.

System

But it is possible to justify a large one-off payment as a catch-up exercise in respect of previous years. Many small business owners take out less than their full market remuneration in the earlier years, and than catch-up when trading improves and they start making real profits.

There is even a dodge for squeazing in 4-year's worth of allowances into 3 by notifying a change of pension year, so that you can get two pension years overlapping one tax year.
Talk to your accountants.