Should company pay pension payments or owner?

Should company pay pension payments or owner?

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Sole trader converting to a limited company on 1st April 2006..... Presently paying £200 pcm to a pension....Co will make about £40000 and director/shareholder(same person) will be borderline higher rate taxpayer with a low salary and balance taken as dividends to meet his lifestyle........

Would it be better for the company to pay the pension or the director?...........Also how do you do this....do you inform the provider that you wish to pay the contributions.... ps he only intends to pay his pension through the company and nothing for the other 5 staff......Thanks
MICHAEL B

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By frauke
24th Mar 2006 17:28

Pension contribution
If the director pays the contribution himself then he will be liable to pay NIC on the extra income. (He will also pay IT, but that will be reclaimed by the pension company as his contribution is paid net of the tax) There is no liability to NIC if the company makes the contributions for him. Its treated as a normal expense.

Just inform the pension company that he is switching to employer only contribution and they'll sort it out. (They do this all the time).

Because he will be employed by the company, this means the company will have more than 5 staff. He must (min requirement) set up a stakeholder pension which his staff must have access to - even if the company does not contribute.

You'd bettter take a look at this link http://www.pensionsservice.gov.uk/employer/exemptions.asp

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By User deleted
24th Mar 2006 20:32

No NIC if he is taking dividends though
If he takes a salary equal to PA of £5035 next year and the balance as dividends, he can pay £5035 gross into the pension from his dividend income and get 22% tax relief at source, with no NIC incurred. The company would only get 19% tax relief on a pension contribution. Not a major saving, but there none the less.
If he wants to pay in more than £5k, he will need to look at employer contributions and possibly higher salary too.

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