Maximum pension payments

[stphnstevey]

If I am paying £5435 a year salary, is the maximum pension contribution I can make:

a) £5435 is actually paid into the pension and then £5435 is grossed up in the pension fund
b) £5435 is the grossed up amount and the net figure actualy paid into the pension is £4348

 

[Jenni384]

Your questions remind me of exams

I believe a) is the correct answer but I'd wait for clarification from someone who's more sure than me

 

[Focused]

As an employee, the answer is (b). You pay £4,348 and the tax relief is paid over to the pension provider by those nice people at HMRC

Focused.

 

[elaine@cheapaccounting]

The answer is a - you can pay in 100% of your salary:

Can I pay as much as I want into my pensions?

Since April 2006 you can contribute as much as you want into any number of pension schemes. Each year you will receive tax relief on your pension contributions up to 100 per cent of your earnings (salary and other earned income), subject to an 'annual allowance' above which tax will be charged.



from this link:



http://www.direct.gov.uk/en/MoneyTa...nt/FinancialPlanningForRetirement/DG_10014579

 

[Focused]

Can you just clarify please. When you say "I", are you refering to you as an individual or you as the company? Strictly speaking, if you have a Ltd company, you should always refer to the company as such. Many people have the misconception (and I'm not saying you are one of them) that if they run their own Ltd company then they are self-employed and pay themselves. The reality is that anyone with a Ltd company is an employee of that company and the company is a separate legal entity. If the company makes the pension contribution (which is not restricted to your level of earnings) then the pension contribution is made gross (£5,435) and the company gets CT relief. As the payment is made gross, there is no tax addition to be made to the contribution in the hands of the pension provider.

If you as the employee are making your own contribution then my earlier reply stands.

Without knowing what the CT rate of the company is, from an income tax and NI point of view, company contributions make sense. If the company paid you an additional £5,435, you would receive £4,348 after tax. You pay this amount into the pension and effectively get the tax back by it being paid to the pension policy provider by HMRC. It has cost the company £5,435 and this can be set against CT. If the company pays the contribution instead, it costs the company £5,435 and again, it gets CT relief on this amount. All square.

The big saving on company contributions comes from the NI saving both to the company and to you as the employee. Had the money been paid to you as an employee for you to make your own payments, the company would have had to pay 12.8% NI contributions and you would have had to pay 11%. You would therefore in fact not have received the full £4,348 but I separated it out just to make the point. When the company makes the payment on your behalf, neither of you suffers the NI.

Focused.

 

[stphnstevey]

Sorry Jenni to bring back exams - that made me laugh when I went back to look at it

'I' was reffering to an employee

Just wanted to confirm what I have read as I too thought that employee's could contribute the maximum of £3,600 or their salary.

But does that mean I (as a director/employee/dogs body) can contribute my full salary of £5345?

The reason I ask is that I don't pay any NI or Income tax on that minimal salary as is it below the two thresholds. Therefore, if I contribute the full £5435 to a pension, I was wondering if all of it would then be grossed up?

As far as I understand though, it looks like of the £5435, the tax is taken off, to make it £4,348 and then it can be put into a pension and grossed back up again to £5435?

I am paying myself the £5435 as it doesn't incur IT or NI or CT. Where as the alternative: dividends incur 21% CT. I realise EMPLOYER contributions would also be tax free, but was wondering whether I could capitilise on the salary I current pay.

In terms of extracting money from the company incurring as little tax as possible:
- Employer pension contributions and £5435 salary both incur no tax - however a salary I can use now where as I would have to wait till 55 to access a pension

 

[Focused]

Yes, even though you pay no tax on your earnings you can still make a gross pension contribution equal to 100% of earnings and get tax relief.
Therefore your gross contribution would be £5,435 but you pay to the pension policy provider only £4,348 after you have deducted 20% tax relief.
The policy provider gets £4,348 from you and the tax relief paid in by HMRC bringing the total back to 100% of earnings - £5,435.

Focused

 

[stphnstevey]

I am just confused then, where the physical money goes :|

£5435 paid in salary (Business bank to personal). Only £4,348 goes to pension provider. Where has the £1087 gone?

It isn't paid in Income tax on the salary as at that level it is not taxable

The pension provider will add £1087 when grossing up the salary, but I seemed to have missed how they got the £1087 (if it is the same £1087!)

 

[Focused]

I hasn't gone anywhere - it's still in your personal bank acount. You received £5,435 from the company. You paid £4,348 to the insurance company. You have got left £1,087. As I stated earlier, you still get the tax relief even if you haven't paid tax. The tax (that you haven't actually paid) is still added to the policy by HMRC.


Focused

 

[stphnstevey]

It's taken a while, but think I have finally got it!

Thanks for persevering!

Does the employee or employer deduct and send the employee pension payment (ie would it come direct from my business account, or business account to personal to pension)?
Does the employee pension contribution have to be shown on the payslip?

 

[Focused]

The company should pay you the salary of £5,435 and you should get a payslip to evidence your earnings. You should then make a personal cheque out to the pension policy provider in the sum of £4,348.

There is no need for your contribution to be shown on a payslip. The pension payment has nothing to do with the company, as once the company have paid you your salary, it's your money to do with as you please. A payslip is only for remuneration from the company to you, the employee. The only such remuneration in your case is the salary of £5,435 which, as above, should be accompanied by a payslip.

Focused

 

[stphnstevey]

Just Google ing this and it seems alot of work for an employer to adminster the scheme, so if an emplyee can do it, all the better.

I have missed out on making a few monthly payments so far, is it legal for an employee to make one annual payment?

 

[stphnstevey]

For anyone interested, spoke to my pension provider and employee payments do not have to go through payroll. For a stakeholder you can make them at any time, monthly/annually or more or less when you like.