We own a ltd business, best way to do our Pension

gibbyni

Hi, me and the wife own a Ltd business, we pay ourselves a wage upto the tax limit, the rest is taken as dividends for tax reasons.

We are starting up our pensions and will be paying in a set amount each month. However I just wanted to know if there are any pros or cons from having the ltd business pay some into our pensions as well?

shaunrc

Hi gibbyni

Firstly I would just like to say I am an IFA who is relatively new to this site so apologies for not having a formal header on this reply.

The answer to your question is yes there are plenty of pros. and there are plenty of other advantages in this area that can be gleaned from having a limited company.

It all derives from the company's existence as a separate legal identity and hence it can choose to do things such as pensions and other benefits such as life cover,critical illness cover and sickness benefits. This can lead to national insurance gains and also things being a legitmate expense of the company.

As to cons they are outweighed by the pros quite heavily,to specify them would need a look at your actual circumstances and the numbers etc.

ffacoffipawb

shaunrc wrote: »

Hi gibbyni

Firstly I would just like to say I am an IFA who is relatively new to this site so apologies for not having a formal header on this reply.

The answer to your question is yes there are plenty of pros. and there are plenty of other advantages in this area that can be gleaned from having a limited company.

It all derives from the company's existence as a separate legal identity and hence it can choose to do things such as pensions and other benefits such as life cover,critical illness cover and sickness benefits. This can lead to national insurance gains and also things being a legitmate expense of the company.

As to cons they are outweighed by the pros quite heavily,to specify them would need a look at your actual circumstances and the numbers etc.

How much an employer can contribute to pensions thus getting NI and corporation tax relief are a grey area.

The HMRC are unlikely to find a salary of £20,000 and a pension contribution of £80,000 acceptable, as it is NI evasion.

The other way round, £80k salary and £20k pension, it looks like a 25% pension contribution which would be acceptable.

I asked HMRC about this, a local HMRC tax inspector, and even he said it was a grey area, so what chance for the rest of us!

Baz_2

If you can demonstrate that a total remunaration package of say £60,000 is acceptable then you can take it how you want, i.e all pension if you please, or any mixture of dividends, salary and pension.

This has just gone through case law and now has a precendent, as long as your a family run company and the directors are husband and wife and the shareholders.

The problems arise when you try to justify a £100,000 pension contribution when really you cannot justify it, i.e profits are too low, you only work part time, and so on. If you can justify a £100,000 salary then you are entitled to pay it all in pension contributions.

shaunrc

Hi gibbyni

I was curious to find out what answer you came to. Did you find the answers helpful and what did you do?

robp

Both my wife and I have our own Ltd companies.

I pay a small wage, the rest in dividends and make a pension contrib of around £1000 per month to my SIPP from the company.

I try to balance it so that I can make good regular personal savings from the dividend, which will be invested in an ISA come April.

My wife isn't interested in a pension, so has decided to go down the cash ISA and savings account route.

A shame really, as pension contribs could lower her corporation tax.