How to setup a SIPP for an IT Contractor

[TopOfDaMornin]

Hopefully I have the right board.

Would anyone be able to point me in the right direction for setting up a SIPP?

Like a few people on this site, I am an IT Contractor with my own limited company. I take money from the company via an annual salary (approx. £8k) and dividends (approx. £40k). I would like to set up a SIPP in the limited company and invest either a lump sum or regular contributions in either a Vanguard World Tracker or a Vanguard Lifestyle product. I have not decided which one yet.

Any direction on how to do this would be appreciated. I have search the web and there is surprisingly limited amount of information on how to set this up.

At the moment, most of my investing is done via an ISA e.g. received annual dividend from my company is put into a HYP held in an ISA.

[Alaric]

I would like to set up a SIPP in the limited company

I thought a SIPP, given that it stands for Self Invested Personal Pension, was always set up in the same of the individual. That doesn't prevent the limited company making a contribution.

The equivalent for Companies is SSAS (Small Self Administered Scheme). These are a good deal more complex and expensive but can have wider investment powers, property used by the Company for example, than might be allowed in a plain SIPP.

[moorfield]

Hopefully I have the right board.

Would anyone be able to point me in the right direction for setting up a SIPP?

Like a few people on this site, I am an IT Contractor with my own limited company. I take money from the company via an annual salary (approx. £8k) and dividends (approx. £40k). I would like to set up a SIPP in the limited company and invest either a lump sum or regular contributions in either a Vanguard World Tracker or a Vanguard Lifestyle product. I have not decided which one yet.

Any direction on how to do this would be appreciated. I have search the web and there is surprisingly limited amount of information on how to set this up.

At the moment, most of my investing is done via an ISA e.g. received annual dividend from my company is put into a HYP held in an ISA.

I did this back in my IT contracting days and should it be quite straightforward using the likes of AJ Bell or Hargreaves Lansdown platforms. Setup your SIPP wrapper in your own name as an individual (ie, not limited company).
(One unappreciated benefit of doing this is you will also be able to consolidate old and future DC pots from any perm jobs into this easily, as I have done.)

Then you have two easy options to fund into it.

1. Make an "employer" payment from your limited company account / debit card, which will be deductible against your corporation tax bill.

and/or

2. Make an "employee" payment from your personal account / debit card, which the provider will reclaim (basic rate) tax and may be deductible against your self assessment tax bill.

You can mix/match both of course provided the total gross amount is no more than the current contribution limit (£40k I think). Personally I found option #1 easier.

Edit/Correction - Sorry:
I just read you are paying yourself an annual salary of £8k, so that is your maximum contribution I'm afraid - not £40k !
You may want to consider upping your salary payment to claw back more tax relief through the pension contribution. Yes that will up your paye and ni a little, but should reduce your Corp Tax. Swings and roundabouts - I remember spending an awful lot of time fiddling with spreadsheets to work out an efficient allocation of salary + pension vs. corp tax, paye and ni.

Good luck however you do it!

[Wmnr]

Moorfield had provided some good advice, apart from

I just read you are paying yourself an annual salary of £8k, so that is your maximum contribution I'm afraid - not £40k !

As a director, your company can stick 40k into your pension and pay you a salary of 8k

I would also estimate how big your sipp will be and work out what the charges will be for whichever providers you are looking at

[moorfield]

Moorfield had provided some good advice, apart from

I just read you are paying yourself an annual salary of £8k, so that is your maximum contribution I'm afraid - not £40k !

As a director, your company can stick 40k into your pension and pay you a salary of 8k

I would also estimate how big your sipp will be and work out what the charges will be for whichever providers you are looking at

Ah thanks for correcting - this rule came in after my time actually ...

Is there any statement on gov.uk that confirms it? Always good to hear these things from the horses mouth too where contracting is involved !!

[Raptor]

Moorfield had provided some good advice, apart from

I just read you are paying yourself an annual salary of £8k, so that is your maximum contribution I'm afraid - not £40k !

As a director, your company can stick 40k into your pension and pay you a salary of 8k

I would also estimate how big your sipp will be and work out what the charges will be for whichever providers you are looking at

Ah thanks for correcting - this rule came in after my time actually ...

Is there any statement on gov.uk that confirms it? Always good to hear these things from the horses mouth too where contracting is involved !!

Does this help?

Raptor

[moorfield]

Does this help?

Raptor

See also https://www.kirkrice.co.uk/blog/company ... -payments/ which coincidentally uses the same salary number.

However, contributions that are made by your company into a pension for you are NOT restricted by your salary; your company can invest the full annual allowance maximum of £40,000 and potentially more than this using carry forward (more on this later).

So setting up the SIPP individually and funding option #1 from limited company account should be fine.

[starquake]

I'd add ^ - company contributions is exactly how I do it.
The nice thing is the company contribution is tax deductible against profit (ie corp tax), so is "tax free" as it gets.

Pay myself more in pension than salary. Accountant said it was fine, and non-unusual as a company director - as they expect renumberation via Pension to go up in later years - it's effectively salary sacrifice for a permie Subject to 40k max still, or 120k over 3 years. Apparently you may get yourself investigated if you pay yourself from previous years profits, so I'd avoid doing that if I was you.

All above stands as long as you are outside IR35, inside, it's probably better to personally contribute and take pension for as much as you can > the higher rate threshold.

[starquake]

Oh and agree at checking charges. For me year one+two of contracting it would have been "cheaper" via another provider than who I chose, as I was picking for the long term, from year 3 to retirement it was WAY cheaper to use another provider. Hence I started there to stop the transfer being a hassle.