March 2, 2008
Limited Companies and Personal Pension Contributions – Hot Topics Q&A
Q. I am a dentist and have recently incorporated after being self-employed for many years. Can you please tell me how much I am able to invest into my personal pension scheme from April 2008? I have arranged with my accountant that I will earn £10,000 pa plus dividend payments payments as appropriate (probably approx. £40,000pa).
We hope this helps, and if you need a referral to an accountant, let us know.
We have asked our professional contacts and this is the advice we have been given, so it makes sense to check everything in advance.
Your company (employer) should also be able to make a contribution to your pension, providing it is 'wholly and exclusively for business purposes'. For example, the company could make a payment of £30,000 to your pension, regardless of the amount of dividends you will receive. The reaon I say *should* is that the payment will be at the discretion of Her Majesty's Revenue & Customs (HMRC), so you or your accountant need to check with them before you do anything to make sure.
This has dealt with your situation as an employee, but what we also need to look at is the position of the company.
A. You are allowed to invest 100% of your gross earned income into a recognised pension scheme. This limit was introduced with pensions simplification in April 2006. Therefore, you will be able to invest £10,000 gross into your pension. The net cost to you will be £8,000 as you will receive £2,000 tax relief.
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Filed under Pensions, Q&A by Ray Prince
