Dividend question

lisyloo

I am going to be changing jobs soon.
Currently I salary sacrifice to my SIPP and save 20% tax, 25.8% NI.
I then fill up my basic rate tax band with dividends as a director of a limited company at 7.5%.

If my new job doesn’t do salary sacrifice then I am aware I will lose the NI :-) but am I right in thinking that if I contribute the equivalent amount to a SIPP that my personal higher level moves up by the gross amount so the tax on my divs remains the same.

I use the term “moves up” as that is how I’ve seen it calculated on IR paperwork.

HappyHarry

lisyloo wrote: »

I am going to be changing jobs soon.
Currently I salary sacrifice to my SIPP and save 20% tax, 25.8% NI.
I then fill up my basic rate tax band with dividends as a director of a limited company at 7.5%.

If my new job doesn’t do salary sacrifice then I am aware I will lose the NI :-) but am I right in thinking that if I contribute the equivalent amount to a SIPP that my personal higher level moves up by the gross amount so the tax on my divs remains the same.

I use the term “moves up” as that is how I’ve seen it calculated on IR paperwork.

Yes - If you have £5,000 of your income liable to higher rate tax, then a gross pension contribution of £5,000 will mean that you don't pay any higher rate tax.

Just a thought, if your new employer doesn't use salary sacrifice, then you might find it better to contribute to the pension directly from your limited company rather than make a personal contribution.

lisyloo

HappyHarry wrote: »

Just a thought, if your new employer doesn't use salary sacrifice, then you might find it better to contribute to the pension directly from your limited company rather than make a personal contribution.

I am a director not an employee of the ltd company.
Can this be done?
I believe we’ve already looked into it but can’t remeber the ins and outs.

lisyloo

Actually I am pretty sure that my employer will effectively force me to use their pension scheme (this is how it’s worked in every job I’ve had).
I can of course contribute to my own but if I want their contribution I have to use theirs.

HappyHarry

Sorry, I should probably clarify my comment above.

You should certainly join your employer's scheme, and contribute enough to that scheme to maximise your employer's contributions.

Then, if you want to contribute more, you have three options;
1. Contribute more to your employer's scheme. This is usually the best option if the employer offers salary sacrifice.
2. Contribute to your own personal pension / SIPP from your limited company. This may not be realistic, depending on the set-up of the company / other directors, but if possible, is probably the next best option.
3. Contribute to your own personal pension / SIPP from your net pay.

lisyloo

Just got the contract and it’s SS (hurrah) although doesn’t state about employees NI, but I’ll take the extra 12%