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Paying pension contributions from my Ltd companyBusiness Community Home > Finance and Tax Forum > Pensions Forum |
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| Original Message Added : 16 Apr 2012 I wonder if any one could help. What are the advantages of paying pension contributions from my Ltd company directly to myself as opposed to paying them after they have gone through PAYE and then paid as my own personal contributions? Thanks very much Nick Herbert
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| Reply : 16 Apr 2012 - (Edited : 16 Apr 2012) You make the employer contribution gross of relief therefore £125pm paid into the pension would be the rough equivalent of £100 after corporation tax. If you were to pay yourself the money via PAYE, you will pay no corporation tax as salaries are also deducted before corp tax but you will pay employer national insurance (13.8%) and employee national insurance (12% or 2% if you earn above the UET) on the salary that you create to pay the contribution the personal income tax suffered is almost irrelevant as you would reclaim that back. so essentially you are looking at reducing your NI bill by making the payment through the company. Depending on the size of the company you might soon be compelled to make pension contributions anyway as compulsory employer payments are being phased in from October this year (for large companies first but eventually all companies over the next 5 years). its worth considering how all of this also impacts on your ability to get a mortgage (depending on the size of pension payment) as a lender would see you with a smaller "income" from the business as not all lenders count employer pension payments within director remuneration calculations. i wouldn't go into too much detail on this type of open forum as there is no confidentiality in what you post!but do feel free to get in touch directly if i can be of further assistance as the above is only meant as a guidance point - i couldn't give you a properly worked out recommendation without knowing more about your circumstances. darrenasmith@2plan.com Darren A Smith DipPFS DipIP Independent Financial Adviser
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| Reply : 16 Apr 2012 the editing box on here is deleting page breaks or putting them in the wrong place, i hope the above reply is readable! |
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| Reply : 16 Apr 2012 Thanks very much Cheers Nick Herbert |
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| Reply : 23 Jul 2012 If you are going down the low salary high dividend route and you want to contribute more than 80% of the amount of your minimal salary then it is preferable to do the contributions through your limited company. This is because the company can claim relief from corporation tax (at 20% unless your profits are over £300k a year) on all contributions. Whereas if you are on a minimal salary of £7,500 a year you could only claim personal tax relief on £6,000 of net contributions to your pension fund. So, assuming a minimal salary of £7,500 a year, if your company contributed £20,000 a year to your pension, you would get £20,000 into your pension fund and the company's corporation tax will be £4,000 lower. Whereas if you contributed £16,000 personally (which would normally be topped up by tax relief to £20,000) you would only get tax relief of £1,500 - meaning £3,500 less in your pension fund.
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