Pensions contributions as Employeer or Employee

crazyITman

I run my own LTD. 

My Income-expense is 50k
I have taken 18k out in PAYE, (claiming EA as more than one employee) (1,084.20 tax, 434.40 NI) 
This leaves me with 32k in profit
this leaves 25,920 after corp tax. 
If i take as a DIV i pay 2268 in taxes on it. 
leaving me with a take home of (16,481.40paye + 23652div) 40133.4. effectively paying 19.7% in taxes. 

I would like to take home less. 35k apx. I would like to put the difference into my SIPP. I can pay in as am employer pre corp tax or as an employee and claim 20% tax relief. 

If i go the employer route; 

My Income-expense is 50k
I have taken 18k out in PAYE, (claiming EA as more than one employee) (1,084.20 tax, 434.40 NI) 
i take out 5k into pension 
This leaves me with 27k in profit
this leaves 21,870 after corp tax. 
If i take as a DIV i pay 1,913.63 in taxes on it. 
leaving me with a take home of (16,481.40paye + 19956.37div) 36437.77 and 5k in the pension pot - effectively paying 17.1% in taxes. 

If i go the tax relief route

My Income-expense is 50k
I have taken 18k out in PAYE, (claiming EA as more than one employee) (1,084.20 tax, 434.40 NI) 
This leaves me with 32k in profit
this leaves 25,920 after corp tax. 
If i take as a DIV i pay 2,268 in taxes on it. 
leaving me with a take home of (16,481.40paye + 23,652div) 40,133.4.

If i then put 5k into pension; leaving me with 35,133.4, but gaining 20% on the 5k making it 6k in the pension pot. 
Totalling 35,133.4 + 6,000 pension = 41,133.4 effectively paying 17.7% in taxes. 

If i only wanted to take home ~30k; 

If i go the employer route; 

My Income-expense is 50k
I have taken 18k out in PAYE, (claiming EA as more than one employee) (1,084.20 tax, 434.40 NI) 
i take out 15k into pension 
This leaves me with 17k in profit
this leaves 13,770 after corp tax. 
If i take as a DIV i pay 1,204.875 in taxes on it. 
leaving me with a take home of (16,481.40paye + 12565.125div) 29,046.525 and 15k in the pension pot - effectively paying 11.9% in taxes. 

If i go the tax relief route

My Income-expense is 50k
I have taken 18k out in PAYE, (claiming EA as more than one employee) (1,084.20 tax, 434.40 NI) 
This leaves me with 32k in profit
this leaves 25,920 after corp tax. 
If i take as a DIV i pay 2,268 in taxes on it. 
leaving me with a take home of (16,481.40paye + 23,652div) 40,133.4.

If i then put 15k into pension; leaving me with 25,133.4, but gaining 20% on the 15k making it 18k in the pension pot. 
Totalling 25,133.4 + 18,000 pension = 43,133.4 effectively paying 13.7% in taxes. 

Given i'm ok with the reduced take home, the employer route looks best to me - I know I can't pay more than I earn via PAYE so employer contributions would be capped at 18k i believe, but is there anything else i'm missing in my analysis? Is it ALWAYS better to take as ER rather than EE? 

El_Torro

You can contribute more than you earn from employer contributions, as long as the total amount contributed (employer and employee) is £60k or less.

As long as you are earning enough to get a qualifying state pension year I don't think there's much reason to contribute to a pension with employee contributions rather than employer. 

Marcon

crazyITman said:

Given i'm ok with the reduced take home, the employer route looks best to me - I know I can't pay more than I earn via PAYE so employer contributions would be capped at 18k i believe, but is there anything else i'm missing in my analysis? Is it ALWAYS better to take as ER rather than EE? 

Employer contributions are limited by the Annual Allowance (currently £60K), not your earnings. See https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/the-annual-allowance

There's also a possibility of carry forward if you want to pay more than that and your company has scope to do so.

Maybe one to discuss with your accountant?

dunstonh

I know I can't pay more than I earn via PAYE so employer contributions would be capped at 18k i believe

No.  You can pay £60k in employer contributions.   The only reason to reduce below that is if you don't have the profit to get corporation tax relief.
You can also use carry forward with an employer contribution (subject to qualifying rules).

 Is it ALWAYS better to take as ER rather than EE? 

Employer contributions trump personal in the majority of scenarios.   It is not 100% but not far off.