Paying Pension net or gross through company

If you want to receive 89 per week in your hand then if you pay the pension yourself you will end up with less. So you'll have to increase your salary (not dividends, as they are not allowable for pension calculations) to allow for this. This will mean that you and your company will have to pay some NI.

If your company pays it, firstly it will always be paid gross not net, and any tax relief is on the corporation tax it pays. Does it make profits and is there tax to pay?

Also, how much do you want to pay in premiums? 89 per week does not entitle you (or your employer on your behalf) to pay any premiums above 3,600 p.a.gross (2,908 net).

Rob Graham

It depends on your circumstances, but normally as an empoloyer's contribution.

Are you saying here that I can not contribute up to 3600 (2800 net) per annum from my savings if those savings have been accumulated through previous dividends?

What would be wrong with the following figures

if i pay myself a dividend from my company of 3466.80 this will attract dividend tax at 19% thus leaving me with 2808.11, If I then pay this into a PPP as a net payment, the government will add 28.2% bringing the contribution up to 3600

so for 3466.80 I get to invest 3600, a 3.8% increase for nothing!

Hey Susan,

I was in a similar position - although not avoiding the NI :-)

Personally, I stuck with a stakeholder, which allows you to contribute as if you earn about 17500 per year even though you earn less. You can reclaim the tax up to about what you pay yourself I think (any pension company or google search can give you the exact details).

I avoided company pensions. They were too complicated, and no IFA could satisfy me that they knew what they were talking about. The fees were high and noone could answer all my "what if's.." ie, I close the company, don't earn anything etc etc. From what I could see, company pensions and EPPs etc are like personal pensions 10 years ago - you get penalised for everything.

SIPPs, the personal pensions, are due for a huge overhaul from next April - it might be best just to get a stakeholder now, and a SIPP from next year.

It is literally your pension at stake. If you don't completely understand what's being offered and all the possible eventualities, avoid it and go for something simple.

Hope this helps in some way - I'm certainly no expert (but I'm yet to meet someone who is).

Tombo.

"Susan" wrote

OK so far (assuming profits of company do not exceed 300Kpa).

"Susan" wrote

Close, but the 2808.00 would gain tax relief bringing it up to 3600.00, and the 0.11 would gain no tax relief, leaving it at just 0.11.

"Susan" wrote

Only because of the special exception that anyone can contribute upto 3600, even if not from salary. Anything above that won't get tax relief, if it is paid out of dividends...

Consider this instead:: If 2808 had been paid as a salary, with no other salary being received by that person, then it would be completely tax-free (below personal threshold). In that case, the 2808 could be paid into the pension - giving "a 28.2% increase for nothing!". That's even better than 3.8%!!

[But don't forget that in both cases, the income paid out of the pension after retirement will be taxed...]

Your consideration seems to fail in that someone earning so little as to not be eligible for income tax is highly unlikely to be contributing 2.8K to a PPP!

Agree with all you say, however that wasn't my question, I am going to contribute a small amount of money into a Personal Pension Plan (3600 per anum gross) My consideration is to either pay this money directly from MY company (I own the company and only employ myself) as a Gross contribution or do I contribute to the PPP from my own money (ie, after my company has paid it to me in the form of a dividend) as a net contribution

The payment from my own money seems the best option as I will be paying 19% on the dividend but get back 28.2% (~22%) on the money I pay in net

My IFA tells me to pay it direct from the company as a gross contribution but I worry that this may be viewed as a payment in kind and then attract income tax and the dreaded NI!

Another IFA tells me to pay it net from my company and get the whole 28.2% added to it, however this seems a bit too good to be true and probably is ssomewhat fraudulent!

So,

You're avoiding NI payments (which the government is cracking down on, big time), you suspect fraudulent advice, you think you may be hit for benefits in kind (which, if you provoke an tax / paye inspection, will blow your NI avoidance scheme out of the water and will result in a huge bill that's likely to be backdated), neither you or any IFA can work out the figures, and you're still thinking about this?????

Best of luck to you.

"Susan" wrote

Don't be silly - *you* were considering contributing 2.8K to a PP when salary was *zero* !! The person could quite easily be receiving dividends as well, or using savings, or whatever else you were considering in your own scenario.

make 3600 more profit, pay 684 more tax, distribute as dividend, put

2808 into pension, you have £108 left over in your pocket and gross pension contribution is same in both cases. Arbitrage between two different tax regimes - corporate and personal.

company contributions into a pension are AFAIK never benefits in kind or taxed. Making company contribution would be standard answer - it hasn't kept up with GB making corp tax < personal tax.

you're well into that grey area already with you "income via dividends" structure. You already get the money, so put it into the pension.

Phil

Don't forget to look holistically at the pensions situation. The government currently makes sure that every pensioner has £102pw single /£156pw couple under the Mininum Income Guarantee (MIG)

To get this from a pension fund at an annuity rate 4.3% of would take a pension fund of £123,349 / £188,651. So if you anticipate having savings below this level you need to consider the alternatives as your efforts may be wasted.

The situation has changed slightly with the pension credit though, which is a bodge to try and mitigate the previous bodge. I've lost track of how to work it out !

I think you've got the right attitude !

Daytona

Phil Thompson wrote

Are you 100% sure about this?

I am amazed that nobody (yet) has given a straight answer to the OP.