Pension payments Ltd company

Grumpy_chap

runcyclejc said:

My pension provider doesn’t accept payments directly from a business account, I’m a bit concerned about how this affects my situation with HMRC. If I continue transferring funds from the business account to my personal account and then to the pension, could that raise any flags? I want to make sure I’m compliant and not inadvertently classifying those payments as dividends or salary.

runcyclejc said:

Dazed_and_C0nfused said:

Given the two things highlighted does this mean the pension provider is adding basic rate tax relief to the contributions?  This would be 25% of the amount paid from your personal account.

Correct the  tax relief is being added to the net contribution 

molerat said:

What does your accountant say about this ?

runcyclejc said:

She tells me she is not able to give advice,and I should seek a IFA !

There seems to be a lot to unwrap here.

First, what exactly are the contributions rules for the OP's SIPP and what exactly has the SIPP provider said about receiving contributions from the business account?

• Has the SIPP provider said they do not accept personal contributions from a company account?
• OR, has the SIPP provider said they will not accept any contributions from a company account?

The first would seem to be correct - personal contributions paid into the SIPP from the OP's personal bank account.  Tax relief is then added back to the contribution by the SIPP provider.  It is for the individual to ensure that drawings from the Ltd Co. are taken in an appropriate manner to cover any taxation arising on drawings.
If the SIPP will only accept personal contributions, the OP may wish to assess whether this is the most appropriate SIPP for the OP's circumstances.

The second would seem to indicate that the SIPP provider is not willing to accept employer contributions into the scheme.    I think this is unusual but, so far as I am aware, there is nothing prohibiting the scheme rules not permitting employer contributions.


Second, the Accountant should be able to advise on how to draw funds from the Ltd Co to the OP so that personal contributions can be made to SIPP, or confirm the ability for the Ltd Co to make employer contributions direct to the SIPP.  That advice will be limited to the taxation positions of each option, and calculation of the taxation liabilities arising (whether on the Ltd Co or the OP personally).

The Accountant will not be able to advise on the selection of SIPP provider, whether the chosen SIPP provider can accept employer contributions, or only personal contributions, the communication of the contribution type to the SIPP, or the change to a SIPP provider that is better suited as an investment envelope to the OP's circumstances.  All of this is the remit of an IFA.


Third, we have to consider what the OP has actually done so far as it seems from the description given by the OP:

1. OP Ltd has made a payment to OP.  This payment is drawings from the Ltd Co. and there are three ways this can be processed:
2. Dividend, which is from retained profits after corporation tax and subject to Dividend Tax payable by the individual at the appropriate marginal rate (and after the dividend allowance).
3. Salary, which is business expenses before corporation tax but subject to employer's NI, employee's NI, income tax
4. Director's Loan (loan to the Director - OP - from the OP's Ltd Co.)  I have included this line for completeness, but it really is probably not relevant here as it is unlikely that whatever has been done by way of pension contributions can be unwound.  There are specific rules relating to Director Loans and the OP should discuss with their Accountant.
5. Having received the payment from the Ltd Co, the OP has made personal contribution to the SIPP.
6. The personal contribution to the SIPP has been processed accordingly by the SIPP provider and, hence, "grossed up" so that tax relief has been added to the contribution by the SIPP provider.

If my understanding is correct in that being what has happened, then the OP now needs to record the correct company accounts to reflect the fact of reality.
That means, either recording the drawings as salary and showing paying the tax arising, or recording the drawings as dividend and paying the tax arising.  
In retrospectively getting this normalised, the OP might want to consider the limits on contributions to the SIPP:

• Annual Allowance (AA) - usually £60k, but may be higher if there is carry-forward available.  This is £60k gross and includes all personal and all employer contributions.
• £100 of employer contributions will cost the Ltd Co £100.
• £100 or personal contributions will cost the OP (personally) £80, which is then grossed-up to £100 by the SIPP claiming the pension tax relief.  Hopefully this makes it obvious why personal contributions must be paid from taxed income (even if no actual tax was paid, under personal allowance)
• In the case of personal contributions, the OP may be able to claim additional tax relief if a higher rate tax payer, via tax return.
• Earned Income - this applies as well as the AA and it is the lower of the two that limits the amount of personal contributions that can be made to a pension.  Earned Income will include the OP's salary drawn from the Ltd Co., but will not include any dividends drawn from the Ltd Co.  Employer contributions are not considered under the Earned income limit to contributions.

Finally, the OP needs to make sure they operate business bank account for the Ltd Co., and personal bank account for personal purposes, and keep the two wholly separate.

dunstonh

Wrong. A limited company is a persona at law and it would cause utter chaos to try and run it through a personal account, not least because payments need to be in the name of the limited company. It's a legal requirement for a limited company to have its own bank account.

Its not wrong.  You would think that a dedicated limited company bank account would be a requirement and I used to think it was like you but there is no such requirement in law.

The Companies Act 2006 requires showing and explaining the company's transactions transparently.   It does not explicitly state that limited companies must have a separate bank account.

Its daft not to but some years back I came across someone who didn't have a limited company bank account and the pension provider wouldn't accept a personal bank account and when I spoke with the accountant, they confirmed that they kept trying to get their client to open one but she hadn't.        A quick google shows some places say it is necessary and others that say it is not (although sensible to do so).

Grumpy_chap

HMRC seem to think that a business account is required:
https://community.hmrc.gov.uk/customerforums/bt/3d09028d-2926-ee11-a81c-000d3a0d1621#:~:
HMRC are not always correct.

Regardless of the legal position, it has to be very strongly recommended to have a specific business account for a Ltd Co., wholly separate to any personal banking.  Several reasons:

• Most personal bank accounts do not permit use for business, so contravene the Ts&Cs and could get shut down
• Easier for accounting to keep it all separate
• Separate out for the purposes of any claims on assets (on the business or the individual)
• Payments to a Ltd Co should be to the Ltd Co., not the owner - this would be a "red flag" in the consumer parts of the forum

Marcon

dunstonh said:

Wrong. A limited company is a persona at law and it would cause utter chaos to try and run it through a personal account, not least because payments need to be in the name of the limited company. It's a legal requirement for a limited company to have its own bank account.

Its not wrong.  You would think that a dedicated limited company bank account would be a requirement and I used to think it was like you but there is no such requirement in law.

The Companies Act 2006 requires showing and explaining the company's transactions transparently.   It does not explicitly state that limited companies must have a separate bank account.

Its daft not to but some years back I came across someone who didn't have a limited company bank account and the pension provider wouldn't accept a personal bank account and when I spoke with the accountant, they confirmed that they kept trying to get their client to open one but she hadn't.        A quick google shows some places say it is necessary and others that say it is not (although sensible to do so).

It's a legal requirement to keep personal and company finances separate, which in practice invariably means having a separate bank account for a UK incorporated limited company which is operating in the UK.  It would be totally impractical to use your personal account - customers are going to be trading with the company (and making payments to that company), and suppliers would expect to bill in the company's name.  Rather than wholesale googling, look at the websites for any UK bank...