Limited company / employer pension

[Farmwifefarmlife]

I have recently gone from self employed to a limited company I am the only employee. I’ve been looking into setting myself up a private pension. I’ve looked into work place pensions would this be a good idea? Lots have a min £50 a month each contribution at the moment I’d be looking at something lower with the hope of increasing in the future. Any help or advice greatly appreciated. Thanks

As an employee, your employer has to pay a minimum % of your salary in. I doubt you can do it less than £50 per month through your company.

(is it worth the costs of being Ltd if £600 PA pension contains aren’t achievable?)

We are with penfold. No minimum contribution x

We changed from sole trader to Ltd Co 23 arrears ago. Now retired. Our accountant kept suggesting that we paid ourselves a low wage up to the NI threshold but not over, then take dividends, as a tax saving option. We were concerned about the state pension, as not paying NI would impact how much we would get, so we paid ourselves over the limit, and just paid what was due. Now retired and glad we did as we both now get the full pension. With regards to private pensions. We paid a nominal monthly amount into a private pension, and, as our profits fluctuated, if we had a good year we would put a lump into pensions, and ISAs, if we had a poor year we would put less, or none in. The accountant did the splitting up between our payment and the employers, but as it came out of the same pot, didn't really affect us. It was a but haphazard, but it worked out OK in the end.

You can get full NI credits without paying NI.

Just pay into a SIPP directly from your limited company. Are you sure you're an employee? I've been a director (and sole shareholder) of mine - less admin.

We pay directly in to our personal SIPP from our Ltd company. It can be somewhat tax efficient, depending on how you balance salary/dividends/corporation tax.

I am sole director but felt being “employed “ by my company was easier as I won’t have to do a personal tax return? It just seemed easier to pay myself a set amount each month as an employee.

Thank you, I will look into them.

You will if you take dividends.

Discuss with your accountant.#

Directors are exempt from workplace pensions, so you have full choice as to whether and what kind of pension you pay into. Most company directors would make "employer" contributions to a SIPP, either monthly or yearly.

Re paying yourself, it's long been the case to pay a relatively modest monthly wage through payroll and then quarterly dividends out of profits. That way you get full NIC credit history, even without paying any NICs! You really don't want to pay too high a wage as you end up paying both employers and employees NIC on your own wage for no benefit at all!

Let your accountant guide you!

Agree with above OP, my DH is director of his limited company. He’s the only employee. I do his payroll and bookkeeping etc.

He pays himself a small salary each month. (We do £1000 a month so 12k pa) And then depending on how business is going, he does a dividend either 6 monthly or yearly. I’m also a shareholder so that helps with the tax, but that depends on your family circumstances. We also do a monthly modest pension contribution and then top up as one lump sum in about February, again depending on profits. As a director he is exempt from the pension enrollment rules, so there is no minimum.

This is most tax efficient and qualifies him for state pension. We aren’t at a life stage where we’re looking for a loan or mortgage, so his official salary being 12k isn’t an issue for us.

Tax return is very straightforward to do and shouldn’t be a reason to not use most efficient structure.

As an employee you must be offered a pension and the amounts are set out by law, Nest is the easiest scheme to use

As a Director of a Limited Company I always had to do a self assessment. This was some time ago though so rules may be different now.

I also use Penfold. Really easy to set up. I pay £250 a month then a few lump sums throughout the year.

Directors of their own limited companies are exempt.

Thank you , that’s extremely helpful.

Have you got an accountant? If you’ve got a limited company you will need to file statutory accounts and a confirmation statement with companies house and a CT600 with HMRC every year. Plus a self assessment return if you receive dividends. I’m not sure that’s any less complex than a self assessment return?

This is why I asked what the benefit was of going Ltd.

Due to the various tax changes over the past few years, for relatively low earning businesses, the tax advantages have mostly disappeared and we're actually converting lots of smaller businesses back from limited back to unincorporated sole traders or partnerships.

This is an excellent summary.

My dh and I are both directors of our Ltd company, and the company pays each of us £1000 pm, which uses up most of the personal tax allowance. PAYE payments reduce the Ltd company's liability for corporation tax, as it's a business expense, so you win at both ends.

I make monthly employer pension contributions into a SIPP, and top it up in February/early March with whatever money I can spare from the company account (my company accounting year ends on 31st March, which is helpful in terms of synching with the UK tax year). Both PAYE and SIPP contributions are tax-efficient ways of taking money out of a ltd company while minimising tax liability on both the personal and corporation tax end of things, as employer contributions are offset against company profits. We are also close to retirement age, which makes paying into a pension much more appealing than it was 20 years ago...

I can take extra income as dividends, which is tax-efficient at a personal tax level as dividends are taxed at a lower level than PAYE, but which doesn't reduce the company's corporation tax liability. In practice I don't do very much of that, as paying into the pension is far more tax-efficient. But you will need to work out your own personal equation of tax-efficiency vs having enough money to actually live on.

Thank you, this is hugely helpful. I have an appointment with my accountant on Monday but this is so helpful and i definitely understand it better now.