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I've been a good little worker lately, so ThunderCorp has decided to pay a monthly contribution into my stakeholder pension fund. How does the tax and NI work? I'm a PAYE employee of ThunderCorp.
thanks y'all,
tl
Nothing much to it. Your company simply pays the amount into the pension fund. There is no tax or NI due on pension payments so the total amount paid is deductible from profits.
The maximum you can pay as a percent of salary (dividend does not count) depends on age though with stakeholder you can a small amount some without paying any salary.
Some red tape though nothing too onerous for the average contractor. I think the IR needs to approve a scheme that an employer pays into, so inform your pension company that your company will be contributing and they will send form plus a lot of bumfy silly regulation crap to line your cat tray with.
Pension Contributions for Self-Employed Contractors
There are no longer any limits to contributions you can make from your limited company income into pension funds; the amounts must simply not be very much larger than your actual declared corporate income.
HMRC have accepted that employer contributions by Contractor's one-man limited companies should be universally eligible for tax relief. This means that, unless you are planning on contributing very large amounts which are totally out of character with your business you can be safe in the knowledge that your contributions will not be questioned by HMRC.
There is a general overriding rule that a companies expenses must be incurred “wholly and exclusively” for the benefit of the trade and there was until recently significant uncertainty as to how large employer contributions could be for this condition to be met. Recent guidance from HM Revenue & Customs, BIM446001 confirms that except for very limited circumstances, the payment of a pension contribution will be treated as part of the normal cost of employment and therefore will satisfy the “wholly and exclusively” requirement.
This guidance is excellent news for one-man limited contractors and it should now be acceptable for a company to make employer contribution to a contractor’s pension, up to the level of profits made by the company.
In most cases the level of contribution that can be made and that will benefit from tax relief will exceed the amount that a contractor is likely to wish to contribute on an annual basis in any given year.
HM Revenue & Customs guidance indicated that particular care will need to be taken with employer contributions to connected people i.e. the contractors spouse, here the level of contribution should be limited to the level of contribution that would be paid to an unconnected employee. It was also thought to be problematic if contributions where paid by a party other than the former employer, after a trade is sold or otherwise ceased.
It's one area that HMRC are reasonably relaxed about - as long as you don't completely take the piss.
If you're using one of the standard pension providers and refrain from putting in a stupidly high percentage, you have little to worry about.
Do make sure that the amounts come out of your business account and are classified as employer contributions are far as your pension provider is aware in order to get relief on Employers NI - otherwise it will be classified as a personal pension.
It's one area that HMRC are reasonably relaxed about - as long as you don't completely take the piss.
If you're using one of the standard pension providers and refrain from putting in a stupidly high percentage, you have little to worry about.
Do make sure that the amounts come out of your business account and are classified as employer contributions are far as your pension provider is aware in order to get relief on Employers NI - otherwise it will be classified as a personal pension.
I make company contributions to my SIPP via Hargreaves Lansdown through a monthly direct debit and it is a really excellent way to build up a pension pot IMO. The money is IR35 proof too as a bonus.
Public Service Posting by the BBC - Bloggs Bulls**t Corp.
Officially CUK certified - Thick as f**k.
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