Do you mean the limited company paying a contribution into their pension pot?
If so think can only pay in up to their salary up to a maximum i think this year of £40k though you can go and use up previous years allowances if not used.
Marks answered this but I'm going to add a little more detail if I may.
The maximum annual personal contribution into a pension scheme is the higher of £3600 or 100% of relevant earnings (trading profits, employment income, FHL, etc. But not investment income including non FHL property).
Note however that there is also something called an annual allowance which is currently £40,000 (that is the total of all contributions, employee and employer from all employments).
The annual allowance may be increased by any unused allowance brought forwards for the previous three years at the rates that were applicable during those years (£50k for each of the prior three).
There is also something called a lifetime allowance. That means that when one retires their pension pot should not exceed £1.25million (FA14) or the excess will be charged to tax at 25% (55% if the excess is taken in cash).
So, in answer to your second question, in your scenario if the £10k is normal income from the directors company all of it can be put into a pension.
HTH,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Sorry, dividends are not relevant earnings so the maximum allowable contribution in that scenario would be £10k.
UK relevant earnings are :
employment income
profits from self-employment (or partnership)
profits from a furnished holiday lettings businesses
patent income derived from inventions devised by the individual
kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Wouldn't HMRC seek to disallow 10k employer contribution to a 10k director salary claiming it to be disproportionate on the basis that it wouldn't happen in a regular employment scenario? What I mean is were he an employee anywhere else there's no chance that an employer would 10k into his pension pot. I remember reading about this on accountingweb.
Even if it's not against the law, HMRC can claim a lot of times claim what they want.
we're talking employee rather than employer contribution as Mark stated that the director receieves £10k salary and the director (not the company) contributes to the pension.
The emphasis here is that the director is taking a salary, all of that salary is being paid to a personal pension. the director has other income (dividends). I am not seeing the problem with the pension contributions themselves which adhere to guidance, but I can possibly see the age old arguement between salary and dividends if the salary does not cover the required commitment for living expenses (which HMRC don't like, but HMRC not liking something does not necessarily make it wrong).
Do you have a link to the Aweb page as I think that the arguement may be more about the legitimacy of the dividend than the level of pension contribution.
Worth noting that HMRC themselves emphasise that pension contributions may be up to 100% of relevant earnings which complies with the relevant Finance Acts. (Can't remember which one thats in but the definition of relevant UK earnings is in FA2004). Why would they state that if they then want to complain about people applying it.
Also worth noting that if the director was on less than £3600 he would be able to contribute more than 100% of salary into his pension as everyone regardless of income can contibute £3600 per year.
Just my thoughts and happy to be convinced that I am incorrect (with pominters to alternate evidence).
kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Just to add a tiny bit to this. You will still get tax relief on the pension contributions even if you are earning below 10k and not actually paying any income tax ð
Sorry, I was rather tired. I thought his client's "employer" might also contribute up to 100% of the director's earnings to the pension scheme to gain corporate tax relief.
Just to add a tiny bit to this. You will still get tax relief on the pension contributions even if you are earning below 10k and not actually paying any income tax ð
Hi Matt,
I don't believe that statement to be completely true. Is not tax relief restricted to the higher of 100% of relevant income or £3600?
So, a director having no relevant earnings (everything in Dividends) but paying £3600 would be entitled to tax relief on £3600
Conversely a director earning nothing but paying £4800 in pension contributions would only be entitled to tax relief on £3600.
Would not the mechanics of this be that the £3600 is grossed up in the pension but the remaining £1200 is not so in the first instance would not the actual grossed up contribution on £4800 be £5700 in the pension rather than £6000?
Interested to debate this although I'm absolutely inundated so turnaround may be a little slower than normal.
kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Sorry, I was rather tired. I thought his client's "employer" might also contribute up to 100% of the director's earnings to the pension scheme to gain corporate tax relief.
Although, in this case these manuals might be already outdated and irrelevant.
Hi Richard,
Yes, quite agree about the employers side not being so cut and dried especially with PSC's but also applicable to all directors .
The whole area around employers contributions is a different side of things to this thread geared more than a little around avoidance of NI contributions.
There have been all sorts of naughtiness around this area in the past where HMRC s eternally playing catch up with in some cases including some really blatant flaunting of the tax system.
Sure that you've heard of examples such as the company paying into a pension fund then the pension finund investing in property that the director then moved into (pretty sure that loop hole got stomped on quite some time back and I'm just using it as an example. There was also a commercial property variant on that which I recall was closed more recently).
kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
