Pension contribution for 2018

SurfacePro

Hello all,

I am director of ltd company and I have just started business in jan 2019. I plan to pay myself a salary of $750PCM. I did no other in 2018 as I was looking after a close family member. Please is the maximum pension contribution I can make for 2018/19 tax year.

dunstonh

I plan to pay myself a salary of $750PCM

That will mean paying NI if maintained into the new tax year. Any reason you are not taking a salary to the primary threshold and dividends above? It would reduce your tax and avoid paying NI.

Please is the maximum pension contribution I can make for 2018/19 tax year.

£160,000 potentially. Although that scenario is unlikely. What level of profit is the business likely to run in the business year?

DairyQueen

The most common way of taking income from a ltd company (assuming you are both director and shareholder) is to take salary up to the NI primary threshold and the balance as dividends.

Pension contributions (assuming no carry forward from previous years) can be paid in two ways.

Firstly (and most tax efficient) you can pay your entire salary (net of tax) into a pension and the government will add tax relief at 20%. Your salary will count as a business expense and therefore will not be liable for corporation tax.

You can also pay employer contributions as an expense directly from the company into your personal pension. These are paid gross and are an expense that reduces corporation tax. You will not receive a personal 20% tax uplift if paid this way but employer's contributions are not limited. Therefore, you can receive employer's pension contributions higher than your gross salary.

SurfacePro

Thanks guys

SurfacePro

dunstonh wrote: »

That will mean paying NI if maintained into the new tax year. Any reason you are not taking a salary to the primary threshold and dividends above? It would reduce your tax and avoid paying NI.
The business just got a new contract in Jan 2019 and will make about 20k between now and April 5th 2019


£160,000 potentially. Although that scenario is unlikely. What level of profit is the business likely to run in the business year?

Roughly about 10k will be for profit.

dunstonh

In which case, it is tax efficient to do upto £10k. The pension contribution reduces your corporation tax bill. So, there is little point paying more into the pension than that amount of the profit (caveats apply but are unlikely in your case).

Prism

Surely you also want to keep a reasonable amount of cash in the business to cover cashflow, lack of work, sickness etc

Thrugelmir

SurfacePro wrote: »

Roughly about 10k will be for profit.

If you intend paying yourself £750 a month. Doesn't leave you with much spare profit. Let alone cash depending on the nature of your business. .

drumtochty

It now appears the poster's limited company is limited in the amount of pension contributions it can make due to the low earnings the company has between it's formation and the end of the tax year.


If for some reason, let's say there was £100,000 in the company bank account. The company could only pay large amounts of carry forward payments if the poster had an existing pension in existence even that was a deferred final salary pension. It could not be done without some form of existing pension scheme in place for those previous years.


That is not an issue in this instance.

SurfacePro

Thank you. Sorry for the late response I didn't know I had other replies.

Also I was looking at Cavendish online and i like invest in Low cost index funds like Vanguard Funds or Aviva pensions. Any idea on how i can go about it. My understanding of SIPP is not too great.

DairyQueen

A SIPP is simply a wrapper (like an ISA). Don't be put-off by the name. You could open an account with the most appropriate provider (there are many to choose from) and then simply transfer your contribution directly from your (or company's) bank account. If the latter make sure that the provider knows that this is a company contribution.

Then you choose your investment and buy whenever.

It's actually pretty simple.

For a low value portfolio (say less than £70k) HL (Hargreaves Lansdown) are pretty good. Excellent user interface and good customer service plus reasonable charges.

There are plenty of other other non-SIPP options (I'll leave the experts to comment on those).