IR35 - offsetting pension contributions

[wurzel]

I'm going to be under IR35 in my next contract & I want to be as tax efficient as possible by making company contributions to a pension scheme.

What I need to know is how much I can afford to make every month - a contribution isn't 100% tax deductable. This is a mistake I made last year when my contributions were too high & I still had quite a big tax bill to pay at the end of the year. Is there a formula for working this out anywhere? I've asked my accountant & he just left me confused as did my financial advisor.

[Billy Pilgrim]

I'm going to be under IR35 in my next contract & I want to be as tax efficient as possible by making company contributions to a pension scheme.

What I need to know is how much I can afford to make every month - a contribution isn't 100% tax deductable. This is a mistake I made last year when my contributions were too high & I still had quite a big tax bill to pay at the end of the year. Is there a formula for working this out anywhere? I've asked my accountant & he just left me confused as did my financial advisor.

A (direct company contribution) comes straight off the bottom line of company end of year accounts as an expense....pay yourself 6K and put every other penny into your pension directly from comapny is the most tax efficient solution (you'll be skint mind!!)

[Fred Bloggs]

A SIPP contribution from the company is completely free of all taxes. No need for any calculation.

[centurian]

a contribution isn't 100% tax deductable.

Pretty sure it is. It works out at roughly 50% once you add tax, both NI's etc, so for every £100 you put in, it reduces your take home pay by about £50

[rootsnall]

A SIPP contribution from the company is completely free of all taxes. No need for any calculation.

Is this the case for an IR35 caught contract ?

[ASB]

Is this the case for an IR35 caught contract ?

Yes. Company contributions are still a legitimate expense.

[ASB]

I'm going to be under IR35 in my next contract & I want to be as tax efficient as possible by making company contributions to a pension scheme.

What I need to know is how much I can afford to make every month - a contribution isn't 100% tax deductable. This is a mistake I made last year when my contributions were too high & I still had quite a big tax bill to pay at the end of the year.

On what basis were the contributions disallowed relief? Yes, personal contributions are limited, however the basis for disallowing company contributions in general is that they were not wholly for the purposes of trade. Provided they were genuine company contributions, not the company making personal contributions on your behalf then there would normally be no reason to disallow them. Recent revenue guidance (which has been posted up several times) seems to make this quite clear.

If your accountant decided to simply disallow them on the basis the exceeded 100% of salary then they may have done you a disservice. You still have the opportunity to correct this.

[rootsnall]

Yes. Company contributions are still a legitimate expense.

I've not read up on IR35 for ages, wasn't there a 5% limit on expenses !? I guess it's one to ask the accountant ! I don't intend declaring myself inside IR35 but if I am paying the majority of my income into a pension then it would be good to know that any investigation would be virtually a waste of time for the IR. I think I'll only pay about 10K in divi's this year, so I guess they be chasing 2K approx.

[Fred Bloggs]

Yes. Company contributions are still a legitimate expense.

Correct.

[Fred Bloggs]

I've not read up on IR35 for ages, wasn't there a 5% limit on expenses !? I guess it's one to ask the accountant ! I don't intend declaring myself inside IR35 but if I am paying the majority of my income into a pension then it would be good to know that any investigation would be virtually a waste of time for the IR. I think I'll only pay about 10K in divi's this year, so I guess they be chasing 2K approx.

Correct, a SIPP funded from the company is IR35 proof money.