How much can I contribute per year?

harryajh

I have a Limited company and pay myself a salary of £10,400 per year, the rest comes out as Dividends.
I've been told that I can put in a maximum of £40,000 into my SIPP from the company per year OR £33,333 personal contributions with 20% tax claimed back.
My question is, can I really put in £40k or am I limited to 100% of my actual salary i.e £10,400?
thanks in advance

Dazed_and_C0nfused

You (the individual person) can only contribute £10,400.

With a relief at source scheme like a personal pension or SIPP that would be £8,320 that you pay to the pension company plus £2,080 basic rate tax relief that the pension company adds giving you a fund of £10,400

The company may be able to contribute more but there is tax relief for you (the individual) on employer contributions, if they contributed £8,320 then your pension fund just has £8,320 in it.

But the company can save tax by making contributions.

Have you discussed this with your accountant?

harryajh

thanks for that, so does that mean my company could make the £40k a year contribution (despite paying me only £10,400) on my behalf reducing the Corp Tax payable as well? - sorry if misunderstood, it was my Accountant that said it was ok to make that level of contribution

NedS

There are two separate issues here - what you can personally contribute and what the company can contribute for you as an employee/director.

Personally, you are restricted by (a) your earnings of £10,400 and (b) by your annual allowance of £40,000. The lower limit of £10,400 is the relevant limit here.

The company is not restricted by the above limits, but any contribution must be wholly and exclusively for the purpose of the business to be tax deductible wrt corporation tax. You will need to consider if the employer contributions are proportionate for the work carried out and are proportionate for the amount the company is paying you for the work you are conducting. In other words, is a benefits package comprising a salary of £10,400 plus pension benefits of £40,000 per year reasonable for the work you are conducting? Would it be reasonable to expect the company to contribute £40k to an employee on a salary of £10,400 who wasn't a director? HMRC may seek to challenge you if it thinks it is excessive and your sole intention is to circumvent the limits for contributing to a pension and/or to avoid tax.

You can read more here:

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim46035

Why not just pay yourself £52,500 per year and then contribute £40k into the pension, staying within the regulations and paying no corporation or income tax?

xylophone

The company may be able to contribute more but there is* tax relief for you (the individual) on employer contributions, if they contributed £8,320 then your pension fund just has £8,320 in it.

* "no"  missing?

Dazed_and_C0nfused

xylophone said:

The company may be able to contribute more but there is* tax relief for you (the individual) on employer contributions, if they contributed £8,320 then your pension fund just has £8,320 in it.

* "no"  missing?

Oops!  And thanks.

DT2001

NedS said:

There are two separate issues here - what you can personally contribute and what the company can contribute for you as an employee/director.

Personally, you are restricted by (a) your earnings of £10,400 and (b) by your annual allowance of £40,000. The lower limit of £10,400 is the relevant limit here.

The company is not restricted by the above limits, but any contribution must be wholly and exclusively for the purpose of the business to be tax deductible wrt corporation tax. You will need to consider if the employer contributions are proportionate for the work carried out and are proportionate for the amount the company is paying you for the work you are conducting. In other words, is a benefits package comprising a salary of £10,400 plus pension benefits of £40,000 per year reasonable for the work you are conducting? Would it be reasonable to expect the company to contribute £40k to an employee on a salary of £10,400 who wasn't a director? HMRC may seek to challenge you if it thinks it is excessive and your sole intention is to circumvent the limits for contributing to a pension and/or to avoid tax.

You can read more here:

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim46035

Why not just pay yourself £52,500 per year and then contribute £40k into the pension, staying within the regulations and paying no corporation or income tax?

Does paying £52.5 k then incur NI as employer and employee?
Would it then be possible to salary sacrifice?
I have found HMRC to be very helpful so maybe OP/or their accountant could get a definitive answer (can Company pay direct or can I salary sacrifice) to avoid challenges and sorting them out. No doubt depends on profitability of company (not using reserves), whether it is a one man company etc

Dazed_and_C0nfused

If you contribute £40k(gross) to a relief at source pension scheme it will have minimal impact on the income tax payable.

For most people the tax would be £8,500 (£37,500 x 20% + £2,500 x 40%).

But with the £40k contribution that would drop to £8,000 (£40,000 x 20%), a £500 saving.

But you would have a pension fund of £40k for an initial outlay of £32k.