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USS pension, self-employed side hustle, and salary sacrifice cap: being tax-efficient
FIREmenow
Posts: 381 Forumite
Hi All, I hope you are well. I wasn't sure whether to put this in pensions or cutting tax, it is more of a pension question, but a lot of the knowledge I am lacking is around tax efficiency.
In employment I pay into USS via salary sacrifice. I'm currently paying the standard amount into the DB part, plus about £765 a month into the DC part. When ii changes their pricing structure in Jan, I am planning to open a personal pension and transfer the whole DC pot out (£32k, can only transfer out the whole thing, and I want to be able to access it flexibly for early retirement and have more choice over my investments), and then build it up again within USS DC to maximise my tax free lump sum when I start taking the DB pension.
At the same time, I am in the process of setting up my own business one day per week and want to be as tax and pension efficient as possible in this.
Until 2029 when the salary sacrifice cap comes in, it seems sensible to increase my USS contributions in line with my extra earnings from the side business, as the most efficient way to get money into my pension. Then supplement living costs from my business profits, which I will pay less NI on. Subject to keeping above minimum wage in my PAYE job. This will also keep me a basic rate tax payer.
I'm currently setting up the business as a sole trader, whilst I get established. After the salary sacrifice cap comes in, my compulsory contributions alone to USS will exceed the salary sacrifice cap. I am wondering whether it would be better to think about making the business a Ltd company at that point in order to make payments directly from the business into my personal pension. I would speak to an accountant first, but I wanted to sound out here if that sounds possible to then discuss with an accountant, in order to organise it in my mind first. As I use my personal allowance up already, as a director of a Ltd company I would probably take dividends and the pension payment, and no salary, unless this is not permitted (as I have been given the impression in my research that it is better not to have to run payroll if you can avoid it?). But I'm not sure if not running payroll means I cannot access some other ltd co benefits eg. tax-free xmas party and gift-giving. I would not need to be VAT registered, if that is relevant.
Does this seem like a theoretically workable strategy? Are there any benefits to looking at this method now rather than waiting for the salary sacrifice cap to come in? I can think of the benefits of piling my wage into my pensions via salary sacrifice whilst I still can, but have less knowledge of the other benefits or downsides of a Ltd company specifically.
Because USS is a hybrid scheme, I can max out the PCLS on my DB pension by adding in money from the DC pot. So if there is a better reason to start paying pension from a Ltd company asap then I would leave the pot that is already built up and reduce/stop the extra contributions.
Many thanks in advance for any thoughts.
In employment I pay into USS via salary sacrifice. I'm currently paying the standard amount into the DB part, plus about £765 a month into the DC part. When ii changes their pricing structure in Jan, I am planning to open a personal pension and transfer the whole DC pot out (£32k, can only transfer out the whole thing, and I want to be able to access it flexibly for early retirement and have more choice over my investments), and then build it up again within USS DC to maximise my tax free lump sum when I start taking the DB pension.
At the same time, I am in the process of setting up my own business one day per week and want to be as tax and pension efficient as possible in this.
Until 2029 when the salary sacrifice cap comes in, it seems sensible to increase my USS contributions in line with my extra earnings from the side business, as the most efficient way to get money into my pension. Then supplement living costs from my business profits, which I will pay less NI on. Subject to keeping above minimum wage in my PAYE job. This will also keep me a basic rate tax payer.
I'm currently setting up the business as a sole trader, whilst I get established. After the salary sacrifice cap comes in, my compulsory contributions alone to USS will exceed the salary sacrifice cap. I am wondering whether it would be better to think about making the business a Ltd company at that point in order to make payments directly from the business into my personal pension. I would speak to an accountant first, but I wanted to sound out here if that sounds possible to then discuss with an accountant, in order to organise it in my mind first. As I use my personal allowance up already, as a director of a Ltd company I would probably take dividends and the pension payment, and no salary, unless this is not permitted (as I have been given the impression in my research that it is better not to have to run payroll if you can avoid it?). But I'm not sure if not running payroll means I cannot access some other ltd co benefits eg. tax-free xmas party and gift-giving. I would not need to be VAT registered, if that is relevant.
Does this seem like a theoretically workable strategy? Are there any benefits to looking at this method now rather than waiting for the salary sacrifice cap to come in? I can think of the benefits of piling my wage into my pensions via salary sacrifice whilst I still can, but have less knowledge of the other benefits or downsides of a Ltd company specifically.
Because USS is a hybrid scheme, I can max out the PCLS on my DB pension by adding in money from the DC pot. So if there is a better reason to start paying pension from a Ltd company asap then I would leave the pot that is already built up and reduce/stop the extra contributions.
Many thanks in advance for any thoughts.
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Comments
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It is a long time since I operated as a Ltd Co but I remember the administration of PAYE for myself was one of the most time consuming and difficult things I had to do. And AFAIK there is no real requirement to pay anything out of it if the director(s) don't want to, it could just accumulate operating profits indefinitely. Dividends is probably the best way to get money out although you can pay expenses such as IT equipment, stationary etc. And direct pension contributions.
Not aware of any advantage in operating as a sole trader?A little FIRE lights the cigar0 -
Use HMRC's free software and payroll takes about 90 seconds a month, if that! https://www.gov.uk/basic-paye-toolsali_bear said:It is a long time since I operated as a Ltd Co but I remember the administration of PAYE for myself was one of the most time consuming and difficult things I had to do. And AFAIK there is no real requirement to pay anything out of it if the director(s) don't want to, it could just accumulate operating profits indefinitely. Dividends is probably the best way to get money out although you can pay expenses such as IT equipment, stationary etc. And direct pension contributions.Googling on your question might have been both quicker and easier, if you're only after simple facts rather than opinions!0 -
It was a few years ago
A little FIRE lights the cigar0
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