Quickie - own ltd company - pay pension from the company or personally?

solidpro

Every February, I have to decide whether or how much I top up my private pension and by what means. The company I own has profit in excess of £100k so CT mitigation is desirable where possible. I am also personally in a position to top up my pension by £50k from savings if I wanted. I am not personally in the 40% tax bracket and have several years underpaying personal pension payments to give me the ability to pay £50k in one year.

Does it make more sense to pay from the company or personally?

Personally, don't I get a 25% top-up from the government, making it £50k + £12.5k = £62.5k? Minus the dividend tax I would have paid on that @ £2662 = £59838.
Company wise, we save 19% on CT reduction on that £50k which means the company saves £9500 = £59500. 

Anything I'm missing?

dunstonh

Does it make more sense to pay from the company or personally?

Virtually always best to take it from the company. Not personally.

Personally, don't I get a 25% top-up from the government, 

There is no 25% top up.  It is a tax relief.  Not a bonus.  It may equate to 25% if you look at it that way on a personal contribution but HMRC treat pensions as gross, not net.

Dazed_and_C0nfused

Do you actually have sufficient pensionable earnings in the current tax year to contribute £62.5k (or even £50k)?

What do you expect your P60 to show your earnings as for 2020:21 and do you have any other earned income in the current tax year?

Brenster

Hi, i am in a similar situation regarding both a company and personal contribution.  I cannot comment on you underpayment, as it is my understanding if you miss a year, you miss it, you cant use the years allowance in future years (would be interested to know if i am wrong), so my understanding is you can only pay in the amount earned through PAYE into your pension which for most company owners i imagine would be circa £9-£10k (as its tax efficient to pay yourself via dividends, but need to have minimal earnings for NI purposes), this contribution is topped up by 25% from the government, this contribution also comes of your earnings and can help to keep you under higher tax thresholds.
Company contributions - this is not subject to 'top up' but does come off your total earnings on your tax return, with the added bonus of saving the company on Corp Tax.

dunstonh

Company directors are not limited to the annual allowance by way of salary.   They can do the full £40k (or more if carry forward is available to utilise) as long as its an employer contribution.

There is no top up on a personal contribution or a company contribution.   £40k pension contribution made by an individual is £40k just as a £40k contribution made by a company is £40k.   Tax relief is not a top-up.  It is a contribution reduction.

solidpro

Earnings are about £37500 dividends and £12500 salary each. There are two of us as husband and wife directors with equal shares. We both earn the same and both have private pensions.

Dazed_and_C0nfused

So you can only personally contribute £12.5k each.

£10k from you plus £2.5k tax relief.

solidpro

Company it is then!