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Employer SIPP contributions from limited company

Indig0
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Employer SIPP contributions from limited company

#276815

Postby Indig0 » January 12th, 2020, 9:27 am

In recent years I've been paying in £40k p/a to my SIPP directly from my limited company, through which I have been contracting, as an Employer Contribution.

Given the impact of IR35 changes expected from April onwards, it is likely that future clients will not engage limited companies so I will probably go down a PAYE route through an umbrella company or something similar.

I will, however, still have over £100k in my limited company bank account, and I was wondering if I could just run this down by using it to make £40k SIPP contributions for the next couple of tax years, and receiving no pension from my PAYE assignments? Or perhaps even a bit of a mix where I maybe arrange for a £20k contribution from my PAYE assignment, to help reduce the income tax due, and then top this up with another £20k from my old limited company?

Or is the general view that the easiest way is to just close the limited company, pay any taxes due on this, and have increased flexibility with what to do with a lump sum?

baldchap
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Re: Employer SIPP contributions from limited company

#276892

Postby baldchap » January 12th, 2020, 6:38 pm

If you closed your company (paying the 10%), could you not then contribute personally to the SIPP and reclaim 20% relief?, and put the rest in Isa's etc.

I know the Company is exempt corporation tax for contributions, but you would need to keep the Company running with associated accountancy fees.

mearnsfool
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Re: Employer SIPP contributions from limited company

#276918

Postby mearnsfool » January 12th, 2020, 8:52 pm

Stop right there, too many simple assumptions here.

We need more info.

What gross amount of pension contribution did the limited company pay into your SIPP in the following PAYE Tax Years

2016 2017
2017 2018
2018 2019

What gross pension contribution has the limited company paid into your SIPP this PAYE tax year 2019 2020.

How many directors are there and if more than one is the other director a partner / wife.

What wage will you have paid yourself via paye this PAYE tax year.

When does you company tax year end.

Of the £100,000 in the company, how much of that is reserves after corporation tax has been paid and how much is profit that has not yet been taxed or paid out as wages, pension contribution for this tax year or expenses still to be paid like accountatnts fees, VAT, liability insurace etc etc.

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Re: Employer SIPP contributions from limited company

#276980

Postby Laughton » January 13th, 2020, 9:48 am

If you closed your company (paying the 10%),


I don't think it's quite that simple. If you are referring to Entrepreneur's Relief then one of the conditions of it being granted is that you do not then continue, or start up, in the same line of work for a minimum of two years.

As mearnsfool says, more information needed.

Indig0
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Re: Employer SIPP contributions from limited company

#277035

Postby Indig0 » January 13th, 2020, 12:39 pm

The company has paid in £40k p/a for the last three years, as well as the full £40k this current year.

One director (me) of Ltd Co.

Circa £8k in salary to be paid this tax year. Most likely this will be over £100k in the next tax year if I start receiving a salary through an umbrella co.

Company tax year end is in June.

£100k is after all costs / taxes / etc.

mearnsfool
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Re: Employer SIPP contributions from limited company

#277199

Postby mearnsfool » January 13th, 2020, 11:56 pm

OK you have used up the last three years £40k pension annual allowance.

You have no unused allowace to play with

It is better to drip feed the money out of the company over a number of years but if you use an accountant to do your books you have various on costs some tiny others a bit more.

Company confirmation statement £13 a year.
Company Bank Charges £60 a year.
An other years proffesional liability insurance at a no trading value.
Accountants fees for non trading but drip feeding your pension, ask them for a quote.

Take it all out at once needs a liquidator say £4k and loads of tax on that income as well as loads of tax on your new PAYE gig.

If your taxable earnings are over £110,000 from the PAYE gig you loose some of the £40k annual pension allowance that you can pay into your pension, google tappered annual allowance.

If you earn over £100k taxable per year from the PAYE gig, you start to loose some of your personal allowance.

To make it simple, maybe pay into a SIPP from your wages from the PAYE gig, if you need to get under £100k taxable.

Reduce the Ltd company pension contribution of £40k to cover any pension you need to pay from the PAYE gig take home pay.

If you are paying say £5k into the SIPP from taxed income from the PAYE gig, remember that is £6.25k gross and that is £6.25k off the £40k gross pension annual allowance payment from the limited company in the next few years.

One last thing to check, have you any previous final salary pensions from a previous employer. If so, the inflation value on that final salary pension must also be taken off the limited company contribution as that is part of the £40k annual allowance.

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Re: Employer SIPP contributions from limited company

#277231

Postby Chrysalis » January 14th, 2020, 7:36 am

Mearnsfool - re DB pension increases. CPI uplift (September of the previous tax year) is discounted when calculating the annual allowance for a DB pension. In most cases therefore there will be little or no annual allowance used up by a deferred DB pension.

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Re: Employer SIPP contributions from limited company

#277315

Postby mearnsfool » January 14th, 2020, 11:52 am

Chrysalis

To be clear are you saying in that case the inflation increase in a db pension not in payment if the person is still working for that db pension employer is only taken into account only when that person is still in that specific db pension, has been for say 30 years at a high salary and the value of the pension increase from earning anothers years pension and plus also earning a years inflation increase from past service can effect the £40k pension annual allowance. The further problem then is the liftime allowance.


On the other hand if this well pensioned person leaves the DB employer at say 55 and due to a large discount for taking their DB pension before say 60 they leave the DB pension to bubble away and that person gets another well paying job for another 5 years with a non db pension employer.

They in that case unlike the continuing db employee, the now money purchase pension employee does not have to consider the inflation increase in that DB pension not yet in payment that will still cost their past DB employer for the next five years, when that person looks at the status of their personal £40k annual pension allowance into a SIPP or whatever that thier new employer pays into.

Again the water is muddied by the lifetime allowance as well.

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Re: Employer SIPP contributions from limited company

#277320

Postby Alaric » January 14th, 2020, 12:06 pm

mearnsfool wrote:
They in that case unlike the continuing db employee, the now money purchase pension employee does not have to consider the inflation increase in that DB pension not yet in payment that will still cost their past DB employer for the next five years


If the funding and asset matching of the DB pension has been done properly, there should be no extra cost to the former employer as the deferred pension should be fully paid for at the time of leaving, including the effects of future inflation. Thus no grounds for levying any tax on the ex employee.

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Re: Employer SIPP contributions from limited company

#277346

Postby StepOne » January 14th, 2020, 12:56 pm

mearnsfool wrote:Company Bank Charges £60 a year.
An other years proffesional liability insurance at a no trading value.


Starling Bank is free, and you don't need to have professional liability insurance.

ursaminortaur
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Re: Employer SIPP contributions from limited company

#277360

Postby ursaminortaur » January 14th, 2020, 1:51 pm

Alaric wrote:
mearnsfool wrote:
They in that case unlike the continuing db employee, the now money purchase pension employee does not have to consider the inflation increase in that DB pension not yet in payment that will still cost their past DB employer for the next five years


If the funding and asset matching of the DB pension has been done properly, there should be no extra cost to the former employer as the deferred pension should be fully paid for at the time of leaving, including the effects of future inflation. Thus no grounds for levying any tax on the ex employee.


For a DB pension the increase by CPI is included in the calculation since the opening value of the rights is uprated by CPI each September. Hence someone in a deferred DB pension will have that pension uprated by CPI each year but will not be deemed to have used up any Annual Allowance because of that.

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/annual-allowance/#

For increases to the pension rights under a DB scheme a 16:1 valuation factor is used (the factor was 10:1 prior to 6 April 2011). When calculating the pension to value, no actuarial reduction factor is to be applied, nor is the member to be treated as though in ill health.

What happens is the opening value of rights, (uprated by CPI each September), is subtracted from the closing value of rights. The difference is the pension input amount. The CPI measure used is the measure for the year to September in the tax year immediately preceding the tax year the pension input period ends. eg. for the 2018/19 tax year the CPI figure from September 2017 is used.

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Re: Employer SIPP contributions from limited company

#277375

Postby Chrysalis » January 14th, 2020, 2:16 pm

ursaminortaur wrote:
Alaric wrote:
mearnsfool wrote:
They in that case unlike the continuing db employee, the now money purchase pension employee does not have to consider the inflation increase in that DB pension not yet in payment that will still cost their past DB employer for the next five years


If the funding and asset matching of the DB pension has been done properly, there should be no extra cost to the former employer as the deferred pension should be fully paid for at the time of leaving, including the effects of future inflation. Thus no grounds for levying any tax on the ex employee.


For a DB pension the increase by CPI is included in the calculation since the opening value of the rights is uprated by CPI each September. Hence someone in a deferred DB pension will have that pension uprated by CPI each year but will not be deemed to have used up any Annual Allowance because of that.

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/annual-allowance/#

For increases to the pension rights under a DB scheme a 16:1 valuation factor is used (the factor was 10:1 prior to 6 April 2011). When calculating the pension to value, no actuarial reduction factor is to be applied, nor is the member to be treated as though in ill health.

What happens is the opening value of rights, (uprated by CPI each September), is subtracted from the closing value of rights. The difference is the pension input amount. The CPI measure used is the measure for the year to September in the tax year immediately preceding the tax year the pension input period ends. eg. for the 2018/19 tax year the CPI figure from September 2017 is used.


Yes, exactly so.
Though I am now wondering if mine and spouses deferred DB pensions, which are at least in part RPI indexed, might actually contribute to our annual allowance. And also what happens at 65 when GMP revaluation is applied. Worms and can come to mind...

Chrysalis
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Re: Employer SIPP contributions from limited company

#277377

Postby Chrysalis » January 14th, 2020, 2:24 pm

Actually I’ve just found this, which states that deferred members of DB pension scheme are (in most circumstances) assumed to have no relevant pension input - ie the deferred pension doesn’t count towards the annual allowance. An exception would be if they still retain a final salary link, so are still accruing benefit by way of salary increases.
So I’ve learnt something useful.

https://www.gov.uk/hmrc-internal-manual ... /ptm051200

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Re: Employer SIPP contributions from limited company

#277629

Postby mearnsfool » January 15th, 2020, 2:29 pm

StepOne wrote:
mearnsfool wrote:Company Bank Charges £60 a year.
An other years proffesional liability insurance at a no trading value.


Starling Bank is free, and you don't need to have professional liability insurance.


That is the first time I have heard of a free LTD company account, you usually get it free for a year or two and as most contract workers only have a few transactions a month, you usually pay no more than the standard £5 charge.

Therefore, good find than you!

Unless there is an agency involved that cover the limited company contractor for professional liability insurance and many do not, it is just stupid not to have professional liability insurance.

It is equally as stupid not to pay for professional liability insurance for another year after finishing with a client in case of claims made against your company especially if the agency has gone out of business as quite a few agencies will be going out of business after April this year due to IR35 coming into the private sector big time.

Can I suggest StepOne, that you carry on providing bargain bank account advice but refrain from advising on limited company professional liability insurance as you are badly informed and not in a position to advise others.

StepOne
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Re: Employer SIPP contributions from limited company

#277841

Postby StepOne » January 16th, 2020, 1:34 pm

mearnsfool wrote:
StepOne wrote:
mearnsfool wrote:Company Bank Charges £60 a year.
An other years proffesional liability insurance at a no trading value.


Starling Bank is free, and you don't need to have professional liability insurance.


That is the first time I have heard of a free LTD company account, you usually get it free for a year or two and as most contract workers only have a few transactions a month, you usually pay no more than the standard £5 charge.

Therefore, good find than you!

Unless there is an agency involved that cover the limited company contractor for professional liability insurance and many do not, it is just stupid not to have professional liability insurance.

It is equally as stupid not to pay for professional liability insurance for another year after finishing with a client in case of claims made against your company especially if the agency has gone out of business as quite a few agencies will be going out of business after April this year due to IR35 coming into the private sector big time.

Can I suggest StepOne, that you carry on providing bargain bank account advice but refrain from advising on limited company professional liability insurance as you are badly informed and not in a position to advise others.


Couple of things - the OP is not trading so there is really no need for insurance. Number 2, if you don't have insurance and a claim is made against the company, surely all they will be able to lay their hands on is the cash in the company (if any) - it's a limited company, so I assume there is no personal liability?

I've been operating as a limited company contractor for years - the last 4 with no insurance as it was not a requirement of the contract. I am just about to start a new contract where they are insisting on it so I have just got a quote for a new policy, and am pleased to find the monthly premium is actually lower than it was when I cancelled my last one.

StepOne.

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Re: Employer SIPP contributions from limited company

#277880

Postby NeilW » January 16th, 2020, 3:58 pm

mearnsfool wrote: but refrain from advising on limited company professional liability insurance as you are badly informed and not in a position to advise others.


He's not badly informed, you are. As well as being very rude.

Who has ever had a claim against liability insurance while contracting? It's next to impossible to prove anything, and even less likely to prove a claim.

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Re: Employer SIPP contributions from limited company

#278040

Postby Indig0 » January 17th, 2020, 10:03 am

Thanks all.

I only have my SIPP in terms of pensions, so no worries about the final salary points.

Cheers.

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Re: Employer SIPP contributions from limited company

#278276

Postby moorfield » January 17th, 2020, 10:40 pm

Indig0 wrote:In recent years I've been paying in £40k p/a to my SIPP directly from my limited company, through which I have been contracting, as an Employer Contribution.

Given the impact of IR35 changes expected from April onwards, it is likely that future clients will not engage limited companies so I will probably go down a PAYE route through an umbrella company or something similar.

I will, however, still have over £100k in my limited company bank account, and I was wondering if I could just run this down by using it to make £40k SIPP contributions for the next couple of tax years, and receiving no pension from my PAYE assignments? Or perhaps even a bit of a mix where I maybe arrange for a £20k contribution from my PAYE assignment, to help reduce the income tax due, and then top this up with another £20k from my old limited company?

Or is the general view that the easiest way is to just close the limited company, pay any taxes due on this, and have increased flexibility with what to do with a lump sum?


I'm not sure you can get away with a £40k pension contribution if you are no longer paying yourself a salary from your company? - check it with an accountant!

In your current circumstances, while you are making the switch from contract to perm/PAYE, I would keep things simple for the next couple years and just keep the cash in your ltdco wrapper while you see how things pan out. You can keep your company inactive and holding the cash quite easily. Deregister from VAT, NI, PAYE and all you then need to do iirc, all online, is the annual acknowledgement, corporation tax return and micro accounts. Buy a company laptop for admin purposes and depreciate it each year along with any bank charges to create a small but demonstrable loss on your books for (no) corporation tax purposes. Pay an accountant if you must, but no reason why you can't do all this yourself.


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