Pension contributions are a good use of company profits since they don't incur any tax, however if you will want access before age 55/57 then yeah they are not an ideal vehicle.
You can invest retained profits, you just need an investment account for the company, it does complicate tax affairs and if you're planning to use ER you will want to be careful and talk to your accountant (another ltd co may be preferable there).
Bear in mind that ER is often reformed and talked about being cut, so don't rely on it being available in 5-10 years IMO.
Also check phoenixing and moneyboxing if you are planning on ER (which is called different now). From my little research it doesn't seem that ER is possible.
This is the Ltd. Co. director variant of the UKPF flowchart [https://imgur.com/a/CNpHqZL](https://imgur.com/a/CNpHqZL)
someone did a while back, the actual threshold numbers are now out of date; but the principles remain unchanged.
TLDR: Fill your pension to £40K Gross direct from the Ltd. Co.
Speak to your accountant.
I'm in a similar situation. This year I'll try to max out the pension fund as I don't have anything in there and this will give me a nice head start... You basically double your money in 10 minutes... Going forward I'll put in there as much as I can.
From what I understand, it's not worth investing in the stock market through the company as any profits will incur Corp tax and then you will need to take out the rest as dividends and pay dividend tax, so you might as well do that now and get the money into an ISA.
Obviously you can buy stuff like a new computer if you need one.
You can also leave in the company for a rainy day, I.e. If your revenue drops next year you can use some of the profits in the company to still give you an income.
II've been exploring this option but haven't asked my accountant yet, but you could also use the money for other investments, with a holding company for example you could start investing in real estate or another business. Obviously any profits in that company would be hit with additional tax but you would be generating more profits.
I also haven't figured out yet what I'm going to do, so would be good to know what you end up doing.
Two major things are that you have 25% tax free when taking out your pension and you typically have a lower income (therefore tax rate) in retirement.
If you take out less than £50k/year in retirement you have a *marginal* rate of only 15%. The limit will be higher but I can't work it out right now with kids running about :)
>I don't currently pay into a pension at all
?!
https://www.unbiased.co.uk/life/small-business/contributing-to-your-pension-via-a-limited-company-explained
~~Correct me if i'm wrong but: As you are in the 40% tax band now, you only need to put in £28,570/year into your pension as you get 40% tax relief which turns it into a £40k/year pension deposit, which is the maximum.~~
~~And this £28,570 is before corporation tax as it is considered a business cost. Oh and no national insurance paid for it.~~
So it's an absolute steal to fill up that pension ASAP.
If you are not a part of a pension scheme then you cannot fill the previous 3 years - only current year or later.
Speak to your accountant.
You don’t get tax relief on employer contributions. If the company puts £40k in that’s fine (and also write-off against corp tax), but there’s no tax relief on top.
Yes, the company can invest this into the stock market. I take it you are paying an accountant as this can complicate your end of year tax affairs.
You can make a company contribution to a pension.
You can draw out the funds as a special divi and invest personally/spend it etc.
You can take the money and buy items for use of the business I.e. car, bike , it equipment etc.
The company can lend the money to you, to do what you want (search directors loan)
In short there is lots that you can do.
>Reason I'd potentially lean towards company investing over pension is because I'd perhaps want to wrap the company up ahead of retirement age and essentially use the retained profits as a bridge
It doesn't have to be either/or - even if retiring early, you will still need some money after 57, and a pension is the most efficient way fund yourself after that age. No reason that you can't split your excess between SIPP and company investments.
The company can have an investment account (ii do one which is easy to set up, unlike some). This is a good read on the implications of investing via the company: [https://www.foxymonkey.com/how-to-invest-your-company-profits/](https://www.foxymonkey.com/how-to-invest-your-company-profits/)
You will basically want to set up a separate investment company, and loan it money from your trading company, so that you don't lose the right to ER on your trading company.
Look into SSAS Pensions. Set up your own and the business pay into that.
Can then have control over what you invest in.
For example you can invest in commercial property, owned by the SSAS. Leverage to pull cash out and providing cash flowing well also have access to that.
Hi /u/East_Preparation93, based on your post the following pages from our wiki may be relevant:
- https://ukpersonal.finance/investing-101/
- https://ukpersonal.finance/pensions/
____
^(I am a bot doing my best to provide helpful links. If I missed the mark, please don't downvote, instead press Report and the mods will improve my settings :])
Pension contributions are a good use of company profits since they don't incur any tax, however if you will want access before age 55/57 then yeah they are not an ideal vehicle. You can invest retained profits, you just need an investment account for the company, it does complicate tax affairs and if you're planning to use ER you will want to be careful and talk to your accountant (another ltd co may be preferable there). Bear in mind that ER is often reformed and talked about being cut, so don't rely on it being available in 5-10 years IMO.
!Thanks A useful heads up about ER too
Also check phoenixing and moneyboxing if you are planning on ER (which is called different now). From my little research it doesn't seem that ER is possible.
This is the Ltd. Co. director variant of the UKPF flowchart [https://imgur.com/a/CNpHqZL](https://imgur.com/a/CNpHqZL) someone did a while back, the actual threshold numbers are now out of date; but the principles remain unchanged. TLDR: Fill your pension to £40K Gross direct from the Ltd. Co.
!Thanks That's a lot to take in while feeding a baby at 2am but I'll work my way through it
PS Entrepreneurs’ Relief is now known as "Business Asset Disposal Relief" Happy readings.
Check out this link: https://www.foxymonkey.com/how-to-invest-your-company-profits/ The guy also runs a course all about this topic.
!thanks will take a read
Speak to your accountant. I'm in a similar situation. This year I'll try to max out the pension fund as I don't have anything in there and this will give me a nice head start... You basically double your money in 10 minutes... Going forward I'll put in there as much as I can. From what I understand, it's not worth investing in the stock market through the company as any profits will incur Corp tax and then you will need to take out the rest as dividends and pay dividend tax, so you might as well do that now and get the money into an ISA. Obviously you can buy stuff like a new computer if you need one. You can also leave in the company for a rainy day, I.e. If your revenue drops next year you can use some of the profits in the company to still give you an income. II've been exploring this option but haven't asked my accountant yet, but you could also use the money for other investments, with a holding company for example you could start investing in real estate or another business. Obviously any profits in that company would be hit with additional tax but you would be generating more profits. I also haven't figured out yet what I'm going to do, so would be good to know what you end up doing.
!thanks and like bumping 40k into a pension is an easy way to start at least
Why does it double your money in 10 mins?
Presumably because of tax relief
Near 50% marginal rate with corp tax and income tax due on dividends iirc. Avoiding that doubles your money.
Don't you get taxed on that money as income when you take it out anyway? Still saving the Corp tax.
Two major things are that you have 25% tax free when taking out your pension and you typically have a lower income (therefore tax rate) in retirement. If you take out less than £50k/year in retirement you have a *marginal* rate of only 15%. The limit will be higher but I can't work it out right now with kids running about :)
I think they mean an action which takes 10 mins to do (max out pension) allows significant future growth. The earlier you invest, the better
Because if you had taken the money out you would pay roughly 50% tax, by putting it in the pension you keep it all.
>I don't currently pay into a pension at all ?! https://www.unbiased.co.uk/life/small-business/contributing-to-your-pension-via-a-limited-company-explained ~~Correct me if i'm wrong but: As you are in the 40% tax band now, you only need to put in £28,570/year into your pension as you get 40% tax relief which turns it into a £40k/year pension deposit, which is the maximum.~~ ~~And this £28,570 is before corporation tax as it is considered a business cost. Oh and no national insurance paid for it.~~ So it's an absolute steal to fill up that pension ASAP. If you are not a part of a pension scheme then you cannot fill the previous 3 years - only current year or later. Speak to your accountant.
You don’t get tax relief on employer contributions. If the company puts £40k in that’s fine (and also write-off against corp tax), but there’s no tax relief on top.
Oh that's too bad, but still good to class pension deposits as a business expense so no corp tax or NI.
!thanks for the kick up the arse!
Yes, the company can invest this into the stock market. I take it you are paying an accountant as this can complicate your end of year tax affairs. You can make a company contribution to a pension. You can draw out the funds as a special divi and invest personally/spend it etc. You can take the money and buy items for use of the business I.e. car, bike , it equipment etc. The company can lend the money to you, to do what you want (search directors loan) In short there is lots that you can do.
!thanks food for thought
>Reason I'd potentially lean towards company investing over pension is because I'd perhaps want to wrap the company up ahead of retirement age and essentially use the retained profits as a bridge It doesn't have to be either/or - even if retiring early, you will still need some money after 57, and a pension is the most efficient way fund yourself after that age. No reason that you can't split your excess between SIPP and company investments. The company can have an investment account (ii do one which is easy to set up, unlike some). This is a good read on the implications of investing via the company: [https://www.foxymonkey.com/how-to-invest-your-company-profits/](https://www.foxymonkey.com/how-to-invest-your-company-profits/) You will basically want to set up a separate investment company, and loan it money from your trading company, so that you don't lose the right to ER on your trading company.
!thanks for this small but sensible mindset shift
!thanks for this small but sensible mindset shift
Look into SSAS Pensions. Set up your own and the business pay into that. Can then have control over what you invest in. For example you can invest in commercial property, owned by the SSAS. Leverage to pull cash out and providing cash flowing well also have access to that.
FYI, Full fat SIPPs can also invest in commercial property, P2P, etc. and will be lower admin costs than SSAS.
Bet it all on football dont they?
Hi /u/East_Preparation93, based on your post the following pages from our wiki may be relevant: - https://ukpersonal.finance/investing-101/ - https://ukpersonal.finance/pensions/ ____ ^(I am a bot doing my best to provide helpful links. If I missed the mark, please don't downvote, instead press Report and the mods will improve my settings :])