Own Ltd Company Pension Contributions vs Personal Contributions

QPRMinty

Does anyone know of a calculator (or perhaps made their own in Excel) to help me work out the most tax efficient combination of employer / employee pension contributions.

My employer is my own Ltd company.

The gist of the issue is that I have next-to-no pension funds up to now (50 years old), except a small amount built up so far after automatic enrolment over the last 2 or 3 years.

I am a basic rate tax payer and debt free. I am now also in a position where I can pound my pension pot with around £1600 a month to get it moving over the next 17 or so years. I'm hoping I can make up for a lot of lost time.

I just need to find the best combo of employer / employee contributions.

Also, if I increase my salary and pay ALL the increase into the pension, will I have to pay tax on the increased salary?

Thanks for reading.

LHW99

If you increase your salary you would also (probably) increase your / your company's NI contributions.
If you are a director, your company can pay up to £40k (less personal contributions) into a pension for you. That can save the company on its corporation tax bill.

SonOf

With own company then employer contributions are best.

Taking a salary above the primary threshold would involve NI. Hence why you only take a salary to that amount and dividends above it. Dividends are not allowable for pension contributions. So, you cant make the personal contribution you want to make.

Employer contributions get money out of the company without CT, IT and NI.

Also, if I increase my salary and pay ALL the increase into the pension, will I have to pay tax on the increased salary?

You will pay NI and you dont get relief against NI with pensions.

xylophone

https://dafferns.com/news/company-contributions-to-a-directors-pension/

Prism

I pay into my pension as an employer payment. Much more tax efficient to do that than pay employers NI, employee NI and Income Tax

tasticz

Hi guys, apologies for hijacking the thread but if you take minimum salary say £700 per month from limited company and rest as dividends.

How much money can the company pay on your behalf as pension without occurring any tax or coming into scrutiny?

Edit: just found the below

https://www.pensionbee.com/pensions-explained/pension-contributions/contributing-to-your-pension-from-your-limited-company


"The limit is currently 100% of your income, up to a maximum of £40,000."

so i guess 8400 pa

SonOf

tasticz wrote: »

Hi guys, apologies for hijacking the thread but if you take minimum salary say £700 per month from limited company and rest as dividends.

How much money can the company pay on your behalf as pension without occurring any tax or coming into scrutiny?

Edit: just found the below

https://www.pensionbee.com/pensions-explained/pension-contributions/contributing-to-your-pension-from-your-limited-company


"The limit is currently 100% of your income, up to a maximum of £40,000."

so i guess 8400 pa

No. For "own company" directors, it is £40,000 (putting aside carry forward which could allow more). There are caveats in some scenarios.

tasticz

SonOf wrote: »

No. For "own company" directors, it is £40,000 (putting aside carry forward which could allow more). There are caveats in some scenarios.

Hi, is there any guide or link which explains it in more detail the caveats?

I own my limited company and my financial year is coming to an end for this year.

For previous years, I have not been making any pension contributions instead just been leaving the cash in my company account. would be good if I could put it in a pension pot

bowlhead99

tasticz wrote: »

How much money can the company pay on your behalf as pension without occurring any tax or coming into scrutiny?

Edit: just found the below

https://www.pensionbee.com/pensions-explained/pension-contributions/contributing-to-your-pension-from-your-limited-company


"The limit is currently 100% of your income, up to a maximum of £40,000."

so i guess 8400 pa

You're reading it wrong. YOU can put in 100% of your income, so if your income is only 8400 YOU can only put in £8400 gross (which you could accomplish by putting £6720 into a private pension arrangement, then your pension provider would claim basic rate tax relief from HMRC to gross it up to £8400 whether or not you had actually needed to pay tax on that income)

However, if *your company* wants to compensate you for all your hard efforts toiling away to generate income for the company, by paying you an £8400 salary and (for example)a £30,000 employer pension contribution, it can do, and then you will have 38400 in the pension. Which is below the £40,000 limit you mentioned.

The £40,000 itself can be increased by carry forward of allowances from previous years, if you were a member of a pension scheme last year but didn't contribute to it (look up the rules of you think might be relevant to you). That might allow your company to give you more than a £30k pension contribution without running out of allowance.

tasticz

bowlhead99 wrote: »

You're reading it wrong. YOU can put in 100% of your income, so if your income is only 8400 YOU can only put in £8400 gross (which you could accomplish by putting £6720 into a private pension arrangement, then your pension provider would claim basic rate tax relief from HMRC to gross it up to £8400 whether or not you had actually needed to pay tax on that income)

However, if *your company* wants to compensate you for all your hard efforts toiling away to generate income for the company, by paying you an £8400 salary and (for example)a £30,000 employer pension contribution, it can do, and then you will have 38400 in the pension. Which is below the £40,000 limit you mentioned.

The £40,000 itself can be increased by carry forward of allowances from previous years, if you were a member of a pension scheme last year but didn't contribute to it (look up the rules of you think might be relevant to you). That might allow your company to give you more than a £30k pension contribution without running out of allowance.

Thanks for the clear explanation above.

If i put in 6720, how does the government make up the shortfall of £1,680? as I do not pay any tax on my income. Is it from their own pockets?

Who would I need to speak to if I need to set all these up? is it my accountant or an independent financial advisor?

QPRMinty

Thanks for all the replies - very helpful :beer: