UK Pension Contributions

[kev88]

Hello,

I was looking for advice with regards to UK pension contributions. I see you can make up to a £60k contribution now. But, if your income is below this amount, you can only make a contribution up to that amount.

If my salary was say £10k and I took £35k in dividends, can I make a contribution up to £45k as an employer contribution from my limited company? Or is it just based on salary (£10k) as to what you can contibute?

Thanks

 

[pentel]

Your employer can make contributions up to £60,000 irrespective of salary

 

[kev88]

Thanks!
Is there a link online that confirms this?

 

[pentel]

Thanks!
Is there a link online that confirms this?

What is the maximum employer’s contribution?

There’s no maximum employer contribution – employers can pay any amount of pension contributions for their employees.

thepeoplespension.co.uk

 

[kev88]

While in theory there is no maximum employer contribution, my annual allowance would still be £60k before I am taxed. But a lot of websites say that you can't go above your annual income for the year. If you do, you are taxed?

commonslibrary.parliament.uk/research-briefings/sn05901/#:~:text=It%20is%20%C2%A360%2C000%20in,annual%20allowance%20reaches%20%C2%A310%2C000.

 

[MikeJ]

You're looking at two different things, but it's easy to get confused here.

You are only able to contribute what you earn.
Your employer is able to put in whatever they like.

You and your employer are two different things.

The £60k tax free limit is total contribution (I think)

 

[DontAsk]

The £60k tax free limit is total contribution (I think)

From the above link "Remember, employer contributions still count towards the employee’s annual allowance."

The 60k limit would only apply if you were earning more than £60k.

If you earn below £60k then your allowance is equal to your salary and includes what your employer pays.

 

[kev88]

From the above link "Remember, employer contributions still count towards the employee’s annual allowance."

The 60k limit would only apply if you were earning more than £60k.

If you earn below £60k then your allowance is equal to your salary and includes what your employer pays.

If my salary was say £10k and I took £35k in dividends from the company, can I make a contribution up to £45k (taking my dividends into account)?

 

[DontAsk]

If my salary was say £10k and I took £35k in dividends from the company, can I make a contribution up to £45k (taking my dividends into account)?

No, dividends do not count.

 

[kev88]

To make clear, If my salary was say £10k and I took £35k in dividends from the company, can my company make a £45k (taking my dividends into account) employer contribution, and I won't be charged extra personal tax. Sorry for not clarifiying! This wouldn't be a personal pension contribution

 

[DontAsk]

Again, dividends do not count towards your annual allowance.

Your employer can pay as much as they like (as can you) into the pension, but there will be tax implications if your annual allowance is exceeded.

You need to talk to your accountant about the most tax efficient way of doing whatever it is you are trying to achieve, i.e., boost you pension, in your particular circumstances.

 

[Daybooks]

Rewind to where you have taxable profits before any salary or attempt to pay dividends. Then determine how you might want to “distribute” those funds in the most efficient way. The employer contribution should be an allowable expense (unless beneficiary unrelated) and if to an eligible scheme.

In addition to what has already been stated - the £60k cap is for the tax benefit and covers both employee and employer contributions - the payment falls into the tax year in which it is physically paid (allow time for the pension provider to acknowledge too - to be on safe side). Subject to rules - unused annual allowances can be carried forward (up to 3 years).

If in doubt as to best method then crunch the numbers on all the options - paying attention to all taxes (e.g. employer national insurance and corporation taxes) paid by the company and all by the individual (income taxes, national insurance, savings income and dividend tax rates).

 

[Argentum Tax]

If my salary was say £10k and I took £35k in dividends from the company, can I make a contribution up to £45k (taking my dividends into account)?

Please do remember that to pay a dividend your company must have adequate available reserves to cover the dividend. If the company pays a pension contribution of £45k then that will impact profits/available reserves. Will the company have adequate profits/reserves (after Corporation Tax) to pay the dividend?

This is where you need an experienced accountant to advise on the proposal. It is so easy to get it wrong with serious consequences.