Calcluating tax relief for director pension contribution

E

elleirbag

Registered User
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27
Folks,
Any help would be gratefully received on this one. I'm the 100% owner/director of my own limited company. I'm the only employee and I have set up a self administered pension fund. I'm doing my own accounts and returns this year and every step I take ends up in more confusion:(
I want to make a contribution to my pension and maximise my 2011 tax relief and I want to do it within the letter of the law.
Two questions....Question 1. I see the revenue guidelines around how much I can contribute i.e a % of salary depending on you age, that is clear. HOWEVER the company who are the co trustees on my self administered fund say I can contribute almost 100% of the salary I earned? How do they make that out? Has anyone come across something like this?

Question 2. Regardless of how much I can contribute, how do I work out the tax relief for my form 11? 1. I'm guessing the pension is an expense against company profit? Is that right?
2. Can I claim back any of the PAYE I paid on my directors salary AS well as recording it as an expense against the company. (I have no other earnings apart from this company salary).
Look forward to your thoughts...Ella :)
 
elleirbag said:
Folks,
Any help would be gratefully received on this one. I'm the 100% owner/director of my own limited company. I'm the only employee and I have set up a self administered pension fund. I'm doing my own accounts and returns this year and every step I take ends up in more confusion:(
I want to make a contribution to my pension and maximise my 2011 tax relief and I want to do it within the letter of the law.
Two questions....Question 1. I see the revenue guidelines around how much I can contribute i.e a % of salary depending on you age, that is clear. HOWEVER the company who are the co trustees on my self administered fund say I can contribute almost 100% of the salary I earned? How do they make that out? Has anyone come across something like this?

Question 2. Regardless of how much I can contribute, how do I work out the tax relief for my form 11? 1. I'm guessing the pension is an expense against company profit? Is that right?
2. Can I claim back any of the PAYE I paid on my directors salary AS well as recording it as an expense against the company. (I have no other earnings apart from this company salary).
Look forward to your thoughts...Ella :)
Click to expand...

OK, this is why people (and their companies) have accountants....

You seem to be blurring the lines between you (and your own personal income tax position), and your company (and its corporation tax position).

Re: Question 1:
You seem to be clear on how much you can contribute to a pension, and I'd say what your pension advisor is talking about is the amount THE COMPANY as your employer can contribute on your behalf. They should be able to / should have been able to explain this to you or else they aren't very good at their job. It's based on how much of a pension you are expected to need at retirement, based on projected earnings up to date of retirement, and subject to Revenue limits on the size of individuals' pension pots.

Re Question 2:
Again you are blurring the lines between you and the company.
The company is required to operate PAYE/PRSI on your salary.
Assuming it does this correctly: If you decide after the year end to make a personal contribution to your pension, that has nothing to do with the salary you received from the company. Any tax relief due on your personal contributions is due to you as a taxpayer, on your own tax return. The company's salary expense is what it is.

Likewise if you do it during the tax year through payroll, it's merely part of the payroll calculations, and doesn't change the salary expense in the company - merely the amount of your net pay and the amount of tax charged on it.
 
To simplify this:
1 the Company can establish an Occupational Pension into which both you and the Company can contribute to
2 personally, you can contribute a % of Salary ( depending on your age)
3 in addition, the Company can also contribute. The amount of the Company contribution requires some calculation ( a function of age, salary, proposed retirement age, type of pension etc) and could indeed be 100% of Salary each year
4 your personal contribution is tax deductible from your salary at source I.e. your salary is reduced by your contribution and then you are taxed on the reduced salary
5 your total salary is treated as a trading expense in the Company accounts and equally so is the Company contribution to the pension fund

Hope this is clear.
 
Conan, Mandelbrot,
Thank you both, yes its very clear now how the tax situation is handled between "personal" and "company" and I've also contacted the co trustee of the pension fund to see how their figures were calculated and I'm happy that their calculations are in line with Revenue guidelines.

Thanks again
 
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