Saving 100% of PAYE salary into SIPP - sanity check

Spreadsheetman

Hi All, Just a sanity check - I am paid by a mix of PAYE and dividends. Currently my PAYE proportion is well over the £40k/annum HMRC limit so I can contribute £32k/annum into my SIPP and get a £40k total contribution inclusive of tax relief.

If my PAYE salary element was reduced to £32k/annum could I still contribute 100% of that to get the £40k total?

(I'd say no problem based on my reading of the HMRC guidelines, but they are not exactly clear!)

bigadaj

No, because you can only contribute 100% of your salary.

Your current salary is £40k, your new salary will be £32k, each is the maximum pension contribution.

Pensions are good and can be tax efficient but they can't generate magic free money.

TheTracker

Spreadsheetman wrote: »

Hi All, Just a sanity check - I am paid by a mix of PAYE and dividends. Currently my PAYE proportion is well over the £40k/annum HMRC limit so I can contribute £32k/annum into my SIPP and get a £40k total contribution inclusive of tax relief.

If my PAYE salary element was reduced to £32k/annum could I still contribute 100% of that to get the £40k total?

(I'd say no problem based on my reading of the HMRC guidelines, but they are not exactly clear!)

can you influence your employer to structure your remuneration differently? It sounds like you own some of the company? If so, try to forgoe PAYE salary above 8k and have the company pay a larger sum direct to a pension, then what your PAYE salary is makes less odds.

Spreadsheetman

A bit of a Doh!: Thinking about it properly 20% basic rate tax on £40k (ignoring allowances) is £8k so I pay £32k into the sipp and the tax rebate is £8k for £40k total contribution. It's the total contribution that is limited by the paye salary, not the amount that I actually contribute before the tax rebate is added.

atush

but if you are an LLC, the company can pay your pension contribs?

Which is better for your bottom line? to have the whole 40K to reduce your corporation tax (and to save employers Nics)? Or pay your 32K?

And can you pay by salary sacrifice?