pension contributions

pension contributions

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director wishes to pay a modest amount into a pension plan

if it is paid via his company, corp tax is reduced presumably

if he pays it into a personal plan, it will be grossed up at 22%

are there any obvious benefits of the company route rather than paying it personally?

thanks in advance for any comments/clarification

John

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By hallsi
07th Feb 2007 14:48

Pension Contributions Comparision
Personal Contributions
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paid out of net income (ie after tax and National Insurance)

Basic Rate Tax relief is given with contribution, ie £78 contribution becomes £100 into pension fund.

if client is a higher rate tax payer an additional 18% tax relief may be obtained through their tax return.

Contribution limit = earned income (min £3,600).

Note that whilst tax relief is obtained, no relief is given for National Insurance paid.

Company Contributions
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paid by company.

Corporation Tax relief obtained (assuming contribution meets W&E rules, ie is contribution excessive?).

Contribution limit - £215,000 (06/07)

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By deanshepherd
07th Feb 2007 14:07

Perhaps..

It depends on your clients income, the company's profits and the amount of contribution he wishes to make.

Personal contributions are limited to the level of earnings, company contributions are not; except to the extent they are so great as to be not deemed W&E for the purposes of the trade.

Therefore, if your client operates a low salary/high dividend structure and wishes to make a contribution greater than £3,600 then the company route will make that available to him.

I usually recommend documenting a salary sacrifice arrangement to avoid problems with W&E.


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By frauke
07th Feb 2007 14:57

Pension Contributions
Both the previous answers are right -

If the company pays the saving is Employee & Employer National Insurance contributions on the amount paid. This is because if the director pays it from his salary, this is after receiving it net of IT and NIC. The IT is refunded (22% added to the contribution & extra for higher rate relief through refund/tax coding) but NIC is lost

I have seen company contributions increased by 10-11% so the net cost to the company is the same, but extra goes into the pension scheme.

http://www.thesipps.org.uk

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