IR35 and pension

[rocketjet]

IR35 and pension

You could use the umbrella providers pension scheme to be the most tax efficient and transferring this into your own pension provider every year. Keep an eye on the umbrella pension providers exit fees.

[James L]

So if I don't use an umbrella company - only my PSC, paid by the agency - there is no way to pay pension to offset the deemed payment. Correct?

[WordIsBond]

So if I don't use an umbrella company - only my PSC, paid by the agency - there is no way to pay pension to offset the deemed payment. Correct?

It depends.

If you are public sector, no. And there's little reason to operate an inside IR35 public sector contract through a PSC rather than an umbrella.

If you are private sector, for now, yes.

Come April, if you are private sector and the client is a small company, yes. If you are private sector and the client is not a small company, no -- and there will be little reason to operate an inside contract with a non-small private sector client through a PSC rather than an umbrella.

[CanPayButWouldRatherNot]

It depends.

If you are public sector, no. And there's little reason to operate an inside IR35 public sector contract through a PSC rather than an umbrella.

If you are private sector, for now, yes.

Come April, if you are private sector and the client is a small company, yes. If you are private sector and the client is not a small company, no -- and there will be little reason to operate an inside contract with a non-small private sector client through a PSC rather than an umbrella.

Very interested in this as currently working for a large bank and the umbrella option looks increasingly likely one ... so the choice of having a PSC might not even be on the cards.

Would be keen on maximising the pension contributions (51 here and looking at 55 eagerly) ... but can someone clarify ..

you can pay in 40k per year in without issue right ?

someone else suggested to over pay and pay the tax on that money (the over contribution) ... does anyone have any details on that scenario ?

[Amanensia]

You can pay in £40k per year yes. If that’s a company contribution you don’t even need sufficient relevant earnings to permit it. You can also pay in £40k for each of the last three tax years (less whatever you paid in those years) provided you were a member of a registered pension scheme in those years.

[WordIsBond]

You can pay in £40k per year yes. If that’s a company contribution you don’t even need sufficient relevant earnings to permit it. You can also pay in £40k for each of the last three tax years (less whatever you paid in those years) provided you were a member of a registered pension scheme in those years.

As long as your income doesn't reach the threshold that triggers lower limits on contributions. The Annual Allowance - The Pensions Advisory Service. Basically, don't take income over £110K if you are going to max out your contributions.

If you had a pension open during the previous three years you could do up to £160K minus (any contributions you made in those three years) minus (any contributions you've made this year) minus (any restrictions due to income over £110K in any of those years). Read up on the pension allowance taper if you had income over that threshold in any of the four years in question. You can also keep the company open until after 6 April and make another £40K contribution.

However, massive pension contributions would likely result in a loss for the company, and that loss can only be carried back one year for Corporation Tax. If you didn't have enough profits in this year and the prior year to negate the losses, you can't reclaim CT going back further. In that case, you would probably be better just making pension contributions to the level that negate your profits, do an MVL to get the rest of the funds out, and then either retain the funds or invest them personally so as to get personal tax relief on them. No point in getting CT relief you can't use, it's better to extract the funds at a relatively low tax rate and then get personal tax relief at a higher rate.

[CanPayButWouldRatherNot]

As long as your income doesn't reach the threshold that triggers lower limits on contributions. The Annual Allowance - The Pensions Advisory Service. Basically, don't take income over £110K if you are going to max out your contributions.

If you had a pension open during the previous three years you could do up to £160K minus (any contributions you made in those three years) minus (any contributions you've made this year) minus (any restrictions due to income over £110K in any of those years). Read up on the pension allowance taper if you had income over that threshold in any of the four years in question. You can also keep the company open until after 6 April and make another £40K contribution.

However, massive pension contributions would likely result in a loss for the company, and that loss can only be carried back one year for Corporation Tax. If you didn't have enough profits in this year and the prior year to negate the losses, you can't reclaim CT going back further. In that case, you would probably be better just making pension contributions to the level that negate your profits, do an MVL to get the rest of the funds out, and then either retain the funds or invest them personally so as to get personal tax relief on them. No point in getting CT relief you can't use, it's better to extract the funds at a relatively low tax rate and then get personal tax relief at a higher rate.

I actually used the loan charge/pension contributions solution that was suggested by @loanranger on here for the last years so I am currently up to date.

thanks for the link and will do some digging but guess I could have a situation whereby

19/20 -> have paid 40k from current ltd company

8 april 2020 -> company makes its final 40k payment and then MVL ?

meanwhile the contract starts via an umbrella and rumbles on ... so can I then put this new funds into a pension (possibly routing to the same pot in due course) ?

... this umbrella payments would then be personal money (not company contribution) so do I get to pay more in ?

[Amanensia]

Not in 2020/21, if the company has already paid £40k. The limit covers all sources of funds.

[Amanensia]

Incidentally thanks WIB regarding the point around corporate tax relief only being able to be carried back one year. I hadn’t twigged that. Better get my own arse in gear.

[CanPayButWouldRatherNot]

Not in 2020/21, if the company has already paid £40k. The limit covers all sources of funds.

thanks for the confirmation