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  • FIRST POST
    • QPRMinty
    • By QPRMinty 15th Jul 19, 3:42 PM
    • 4Posts
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    QPRMinty
    Own Ltd Company Pension Contributions vs Personal Contributions
    • #1
    • 15th Jul 19, 3:42 PM
    Own Ltd Company Pension Contributions vs Personal Contributions 15th Jul 19 at 3:42 PM
    Does anyone know of a calculator (or perhaps made their own in Excel) to help me work out the most tax efficient combination of employer / employee pension contributions.

    My employer is my own Ltd company.

    The gist of the issue is that I have next-to-no pension funds up to now (50 years old), except a small amount built up so far after automatic enrolment over the last 2 or 3 years.

    I am a basic rate tax payer and debt free. I am now also in a position where I can pound my pension pot with around 1600 a month to get it moving over the next 17 or so years. I'm hoping I can make up for a lot of lost time.

    I just need to find the best combo of employer / employee contributions.

    Also, if I increase my salary and pay ALL the increase into the pension, will I have to pay tax on the increased salary?

    Thanks for reading.
Page 1
    • LHW99
    • By LHW99 15th Jul 19, 4:36 PM
    • 2,078 Posts
    • 1,915 Thanks
    LHW99
    • #2
    • 15th Jul 19, 4:36 PM
    • #2
    • 15th Jul 19, 4:36 PM
    If you increase your salary you would also (probably) increase your / your company's NI contributions.
    If you are a director, your company can pay up to 40k (less personal contributions) into a pension for you. That can save the company on its corporation tax bill.
    • SonOf
    • By SonOf 15th Jul 19, 4:40 PM
    • 792 Posts
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    SonOf
    • #3
    • 15th Jul 19, 4:40 PM
    • #3
    • 15th Jul 19, 4:40 PM
    With own company then employer contributions are best.

    Taking a salary above the primary threshold would involve NI. Hence why you only take a salary to that amount and dividends above it. Dividends are not allowable for pension contributions. So, you cant make the personal contribution you want to make.

    Employer contributions get money out of the company without CT, IT and NI.

    Also, if I increase my salary and pay ALL the increase into the pension, will I have to pay tax on the increased salary?
    You will pay NI and you dont get relief against NI with pensions.
    • xylophone
    • By xylophone 15th Jul 19, 4:42 PM
    • 30,629 Posts
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    xylophone
    • #4
    • 15th Jul 19, 4:42 PM
    • #4
    • 15th Jul 19, 4:42 PM
    https://dafferns.com/news/company-contributions-to-a-directors-pension/
    • Prism
    • By Prism 15th Jul 19, 6:04 PM
    • 1,040 Posts
    • 776 Thanks
    Prism
    • #5
    • 15th Jul 19, 6:04 PM
    • #5
    • 15th Jul 19, 6:04 PM
    I pay into my pension as an employer payment. Much more tax efficient to do that than pay employers NI, employee NI and Income Tax
    • tasticz
    • By tasticz 15th Jul 19, 8:25 PM
    • 362 Posts
    • 105 Thanks
    tasticz
    • #6
    • 15th Jul 19, 8:25 PM
    • #6
    • 15th Jul 19, 8:25 PM
    Hi guys, apologies for hijacking the thread but if you take minimum salary say 700 per month from limited company and rest as dividends.

    How much money can the company pay on your behalf as pension without occurring any tax or coming into scrutiny?

    Edit: just found the below

    https://www.pensionbee.com/pensions-explained/pension-contributions/contributing-to-your-pension-from-your-limited-company


    "The limit is currently 100% of your income, up to a maximum of 40,000."

    so i guess 8400 pa
    Last edited by tasticz; 15-07-2019 at 8:36 PM.
    • SonOf
    • By SonOf 15th Jul 19, 8:38 PM
    • 792 Posts
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    SonOf
    • #7
    • 15th Jul 19, 8:38 PM
    • #7
    • 15th Jul 19, 8:38 PM
    Hi guys, apologies for hijacking the thread but if you take minimum salary say 700 per month from limited company and rest as dividends.

    How much money can the company pay on your behalf as pension without occurring any tax or coming into scrutiny?

    Edit: just found the below

    https://www.pensionbee.com/pensions-explained/pension-contributions/contributing-to-your-pension-from-your-limited-company


    "The limit is currently 100% of your income, up to a maximum of 40,000."

    so i guess 8400 pa
    Originally posted by tasticz
    No. For "own company" directors, it is 40,000 (putting aside carry forward which could allow more). There are caveats in some scenarios.
    Last edited by SonOf; 15-07-2019 at 8:40 PM.
    • tasticz
    • By tasticz 15th Jul 19, 8:46 PM
    • 362 Posts
    • 105 Thanks
    tasticz
    • #8
    • 15th Jul 19, 8:46 PM
    • #8
    • 15th Jul 19, 8:46 PM
    No. For "own company" directors, it is 40,000 (putting aside carry forward which could allow more). There are caveats in some scenarios.
    Originally posted by SonOf
    Hi, is there any guide or link which explains it in more detail the caveats?

    I own my limited company and my financial year is coming to an end for this year.

    For previous years, I have not been making any pension contributions instead just been leaving the cash in my company account. would be good if I could put it in a pension pot
    • bowlhead99
    • By bowlhead99 15th Jul 19, 8:49 PM
    • 9,090 Posts
    • 16,630 Thanks
    bowlhead99
    • #9
    • 15th Jul 19, 8:49 PM
    • #9
    • 15th Jul 19, 8:49 PM

    How much money can the company pay on your behalf as pension without occurring any tax or coming into scrutiny?

    Edit: just found the below

    https://www.pensionbee.com/pensions-explained/pension-contributions/contributing-to-your-pension-from-your-limited-company


    "The limit is currently 100% of your income, up to a maximum of 40,000."

    so i guess 8400 pa
    Originally posted by tasticz
    You're reading it wrong. YOU can put in 100% of your income, so if your income is only 8400 YOU can only put in 8400 gross (which you could accomplish by putting 6720 into a private pension arrangement, then your pension provider would claim basic rate tax relief from HMRC to gross it up to 8400 whether or not you had actually needed to pay tax on that income)

    However, if *your company* wants to compensate you for all your hard efforts toiling away to generate income for the company, by paying you an 8400 salary and (for example)a 30,000 employer pension contribution, it can do, and then you will have 38400 in the pension. Which is below the 40,000 limit you mentioned.

    The 40,000 itself can be increased by carry forward of allowances from previous years, if you were a member of a pension scheme last year but didn't contribute to it (look up the rules of you think might be relevant to you). That might allow your company to give you more than a 30k pension contribution without running out of allowance.
    • tasticz
    • By tasticz 15th Jul 19, 9:04 PM
    • 362 Posts
    • 105 Thanks
    tasticz
    You're reading it wrong. YOU can put in 100% of your income, so if your income is only 8400 YOU can only put in 8400 gross (which you could accomplish by putting 6720 into a private pension arrangement, then your pension provider would claim basic rate tax relief from HMRC to gross it up to 8400 whether or not you had actually needed to pay tax on that income)

    However, if *your company* wants to compensate you for all your hard efforts toiling away to generate income for the company, by paying you an 8400 salary and (for example)a 30,000 employer pension contribution, it can do, and then you will have 38400 in the pension. Which is below the 40,000 limit you mentioned.

    The 40,000 itself can be increased by carry forward of allowances from previous years, if you were a member of a pension scheme last year but didn't contribute to it (look up the rules of you think might be relevant to you). That might allow your company to give you more than a 30k pension contribution without running out of allowance.
    Originally posted by bowlhead99
    Thanks for the clear explanation above.

    If i put in 6720, how does the government make up the shortfall of 1,680? as I do not pay any tax on my income. Is it from their own pockets?

    Who would I need to speak to if I need to set all these up? is it my accountant or an independent financial advisor?
    • QPRMinty
    • By QPRMinty 15th Jul 19, 10:04 PM
    • 4 Posts
    • 0 Thanks
    QPRMinty
    Thanks for all the replies - very helpful
    • Marcon
    • By Marcon 15th Jul 19, 10:43 PM
    • 1,175 Posts
    • 923 Thanks
    Marcon
    Thanks for the clear explanation above.

    If i put in 6720, how does the government make up the shortfall of 1,680? as I do not pay any tax on my income. Is it from their own pockets?

    Who would I need to speak to if I need to set all these up? is it my accountant or an independent financial advisor?
    Originally posted by tasticz
    The government's 'own pockets' are funded by the kindly taxpayer.... Relief at source schemes allow the provider to claim back basic rate tax on your behalf even if you are a non-taxpayer.

    Depends how much you/your company want to contribute as to the sort of advice (if any) you need. A simple stakeholder or SIPP can be opened online.
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