Pension allowance & tapering

KCartwright

Hello experts,

Looking at some help for next year's tax planning.

I was in a permanent employment from 2016-2018 and was enrolled into workplace pension scheme with Scottish Widows. The total contribution that I can see if £500 for 2016-2017 and £1500 for 2017-18(somehow employer's contribution appears to be missing but that's for another day). I did not have any other pension contribution.

However since 2018 I have been working through my limited company and have significant funds in it now. I also started a SIPP in Feb 2019 and made an employer contribution of £5000 from the limited company.

1) Is my carry forward pension allowance calculation correct for the years noted?
2016-17 = 40000 - 500 = £39500
2017-18 = 40000 - 1500 = £38500
2018-19 = 40000 - 5000 = £35000
2019-20 = 40000

I will be taking the MVL route to close the company and going forward work through umbrella instead. This would put me in the higher tax bracket for 2020-2021. Total expected income for 2020-21 ~ £150000 (yearly billing) + £100000 (MVL Capital distribution) = £250,000

Am I right to assume that I can use the annual pension allowance + carry forward allowance from previous years and make a salary sacrifice contribution to reduce the tax impact.
I.e. pension allowance £40000 (20-21) + £38500 (17-18) + £35000 (18-19) = £113500. This would mean that it would be PAYE on £36500 (£150000 - £113500) and 10% of £100000 (MVL cap distribution).

Also am I looking at my annual pension allowance for 2020-21 getting tapered and possibly be reduced to £10000? However even in that situation am I right to assume that I have £30K of carry forward allowance available from 2019-20 to avoid extra tax liability?

Thanks

Sibbers123

You are broadly correct. I would be very careful with the timing of your pension contributions however, as the current year annual allowance is used before any b/fwd unused annual allowance. You will need to establish the employer contributions for 2016/17 and 2017/18 to work out the remaining annual allowance. Also, you need to elaborate of 'yearly billing' of £150,000.

This is a question you should be asking your tax adviser, especially with the sums at stake. I assume you have one, you'll certainly need an insolvency practitioner to complete the MVL for you.

Are you continuing to trade after the MVL?

KCartwright

Thanks Shibbers.

I would be very careful with the timing of your pension contributions however, as the current year annual allowance is used before any b/fwd unused annual allowance.

I think I have taken that into account. If you see the allowance calculation I have year 2020-21 first and then others. - " pension allowance £40000 (20-21) + £38500 (17-18) + £35000 (18-19) = £113500"
I hope this is what you meant.

Also, you need to elaborate of 'yearly billing' of £150,000.

This is essentially Day Rate X Number of days worked in a year.

This is a question you should be asking your tax adviser, especially with the sums at stake. I assume you have one, you'll certainly need an insolvency practitioner to complete the MVL for you.

I have asked my accountants. However keeping the festive season in mind they are a bit busy to look into it right away. I have also shortlisted the insolvency practitioners that I will go with.

Are you continuing to trade after the MVL?

I would be working through an umbrella, instead of a PSC.