Small company - how much to take out as dividend and pension

charoniv

You should be able to pay up to £40k into the pension from the company for this tax year plus previous tax years. You don't get payment from tje government for this - it just comes off the company profits so you don't pay corporation tax on it. You will pay income tax when it's taken out so you don't really gain - just on the tax free lumpo sum at the moment.

It probably depends on how you have the pension set up and your situation but I would pay a dividend to take you up to the higher rate tax bracket then pay the rest into the pension, convert to drawdown and take the 25% tax free lump sum.

One thing to consider is that putting money into a pension might be risky if you are young. At the moment you can access the money if you are over 50 but until then you are at the mercy of any rule changes.

eskbanker

room_101 wrote: »

Why do you advocate not paying NI contributions which ensure I get my state pension?

I think the point is that there is no additional state pension benefit from paying a salary above £8,164, as that level generates enough NI to qualify as a full year's contributions towards pension entitlement. Again, your accountant should be able to explain salary optimisation, or most contractor-related websites will cover this....

NordicNoir

room_101 wrote: »

I can also add money into my new pension portfolio at a charge of 1.8% for lump sum investments.

What kind of pension is this? Is it one where you have a personal pension and an executive pension all managed by an advisor? I would not be too keen paying 1.8% on contributions going in (I assume that this is an advisor fee and that you will also have a platform fee as well as the fund managers fees) Is there also an exit fee?

MoneySavingUser

room_101 wrote: »

Why do you advocate not paying NI contributions which ensure I get my state pension?

eskbanker wrote: »

I think the point is that there is no additional state pension benefit from paying a salary above £8,164, as that level generates enough NI to qualify as a full year's contributions towards pension entitlement. Again, your accountant should be able to explain salary optimisation, or most contractor-related websites will cover this....

As eskbanker says:

https://www.gov.uk/government/publications/rates-and-allowances-national-insurance-contributions/rates-and-allowances-national-insurance-contributions

Lower Earnings Limit (LEL)
Employees don’t pay NI but get the benefits of paying

As long as you are over the LEL for salary you are ok

charoniv wrote: »

You should be able to pay up to £40k into the pension from the company for this tax year plus previous tax years. You don't get payment from tje government for this - it just comes off the company profits so you don't pay corporation tax on it. You will pay income tax when it's taken out so you don't really gain - just on the tax free lumpo sum at the moment.

It probably depends on how you have the pension set up and your situation but I would pay a dividend to take you up to the higher rate tax bracket then pay the rest into the pension, convert to drawdown and take the 25% tax free lump sum.

One thing to consider is that putting money into a pension might be risky if you are young. At the moment you can access the money if you are over 50 but until then you are at the mercy of any rule changes.

Only if he was a member of a pension scheme in those years and only to the extent he has unused allowance.

He said he only had £20k so he is limited in using the BRB and doesn't seem like he needs the money.

abdul56

If you are the company director and paying income directly from the business account to your pension provider. This amount of money will not be liable to the standard pension top up by the government.

However the money paid in can be off set from corporation tax.

This is a little fiddly but it can be done. Your accountant should be able to advise you.

anselld

Remember that to get £5k dividend you must first declare profit and pay CT on that profit. Whereas (employer) pension contribution is allowable cost hence avoid CT on that money.

So the most tax efficient way (short term) is to put the whole £20k in as employer pension. Obviously with pensions they still get you in the end.