Limited Company, Personal Pension contributions - help!

foreversummer

Hi

My hubbie has a personal pension but has not paid into it for some time. He and I are directors of our Limited Company. He draws a small salary with the remainder being drawn as dividends.

He has received his corporation tax bill for the trading period July 2006 to June 2007. Is it possible to pay some money into his personal pension plan to reduce the corporation tax amount.

I'm sorry, but pensions go right over my head.

Any pointers much appreciated.

Foreversummer

Dithering_Dad

Hi, if you pay into a personal pension from your limited company, not only will it reduce your corporation tax, because you are paying the majority of your earnings via dividends you can get a tax rebate of 45% (or more - I forget the actual amount) due to the way dividends are taxed.

Unfortunately as your company year has closed you cannot back-date the pension payments. Going forward though in the next company year, you will be able to get these tax benefits. Just remember to arrange with your PP (or stakeholder) provider for these payments to come from your company bank account and make sure they know they are employer contributions and not employee ones.

Hope this helps.

foreversummer

Hi Ditherine Dad

Thank you for replying. I had a feeling it would not be possible to backdate payments.

I would be very interested to know about the tax rebate of 45% (or so) and how this works in principle. I assume the actual payments are tax deductible, but there seems to be a bigger benefit than this.

I've tried to get the info from the IR site but cannot seem to find what I want. Can anyone elaborate further.

Dithering_Dad

This thread explains it well:

http://forums.moneysavingexpert.com/showthread.html?t=523557

Though thinking about it, I think if you make payments into a pension directly from your company, you save on Corp tax, but to get the 44.5% tax savings you would have to pay individual contributions and then claim the money back.

I guess now someone has to do the calculations to see which approach saves you the most money. I can't do these tonight because my brain is frazzled after fixing a grossing up tax problem at work and as soon as I put the kids to bed I'm off for a lie down myself!!

foreversummer

Thank you very much. I've had a quick look, but I can't take it all in tonight, but will certainly come back to it!

Thanks once again.

shaunrc

Hi Foreversummer

Firstly I am an IFA but this is help not advice as we are regulated by the FSA and advice has a specific meaning.

Having a limited company brings a host of advantages in terms of financial planning. One of them you have identified which is making a pension payment out of the company. Compared with you or your husband being paid it is very efficient. Essentially you do not pay tax or national insurance on it and it is usually an expense for corporation tax purposes.

Unfortunately it isnt possible to backdate the relief/payments,sorry. It is something you can fix going forward.

Also you can use the company to pay for other benefits such as life cover,critical illness cover and general sickness cover.

In conclusion it is an area where it is best to seek advice from an adviser who is experienced in this type of business as it needs to be done properly. I have lost count of the people with limited companies who pay into a pension or pay for life cover personally because they have seen someone who is not fully qualified in this area.

Regards