IR35 and employer pension contributions

[turbowoowoo]

If yourCo pays contributions to a private pension throughout the year (ie monthly and some top ups) how would the tax man aportion these contributions if during the year you had 6 months inside IR35 (ie 6 month gig inside ir35?)

Would Hector look at the contributions during that 6 month period or the whole financial year?

what I am thinking is that if you were in an IR35 situation then seriously increase contributions during this stint to reduce exposure to NI and PAYE.

NOTE: please do not contribute pompous responses regarding the search button, it really is boring

[Contreras]

My guess is that Hector can't apportion pension (or salary) against individual contracts. So if you had 2 x 6 month contracts fitted neatly into the tax year, one inside IR35 and one outside, I reckon the full year's pension and salary would be deductible before IR35 was applied. Similar situation for a 6 months gig inside IR35 + 6 months on the bench. Would be nice to see a qualified answer to this though, especially if my assumption is wrong!

I typically pay pension/salary as lump sums at year end, mainly for simpler admin but I have sometimes pondered if there's an IR35 angle to consider.

[TheFaQQer]

Have you read http://forums.contractoruk.com/accou...ributions.html ? There is some good advice in there.

Also, in http://forums.contractoruk.com/accou...stigation.html there was a discussion about whether making retrospective payments into a pension plan to avoid IR35 might be considered tax evasion because the only intent was to evade tax that was now known to be due.

So, if you are inside IR35 then make the contributions at the time seems to be the advice - I don't think you would be able to claim a deduction for a payment that was made outside the period of the contract, since that wouldn't be the period of investigation.

[IR35 Avoider]

The starting point for your calculation is to add up all caught income received by the company within the tax year. (When the work was done or invoiced is irrelevant because IR35 is calculated on a cash basis. If March invoice payment hits company account after the 5th of April, then that caught income is part of the IR35 bill for the new year, not that of the old year.)

Take 95% of that, deduct any allowable employee expenses, actually salary paid, employer NI on that salary, and employer pension contributions paid during the tax year. The remainder needs to be split between a deemed salary and employers NI on that deemed salary.

So it doesn't matter when in a tax year you make pension contributions, they can be set against any caught contract income received during that year.

[turbowoowoo]

Thanks all for your responses.

So if march invoice for say 14k hits my account in april and that is the only invoice which is IR35 related for that financial year, and I contribute 20k to an employee pension during that year, what is the outcome then? its a negative? no tax? or can you actually offset the tax against other income that year?

Thanks again

The starting point for your calculation is to add up all caught income received by the company within the tax year. (When the work was done or invoiced is irrelevant because IR35 is calculated on a cash basis. If March invoice payment hits company account after the 5th of April, then that caught income is part of the IR35 bill for the new year, not that of the old year.)

Take 95% of that, deduct any allowable employee expenses, actually salary paid, employer NI on that salary, and employer pension contributions paid during the tax year. The remainder needs to be split between a deemed salary and employers NI on that deemed salary.

So it doesn't matter when in a tax year you make pension contributions, they can be set against any caught contract income received during that year.

[Contreras]

Thanks all for your responses.

So if march invoice for say 14k hits my account in april and that is the only invoice which is IR35 related for that financial year, and I contribute 20k to an employee pension during that year, what is the outcome then? its a negative? no tax? or can you actually offset the tax against other income that year?

Thanks again

No additional tax, if the advice given in this thread is correct - please check with your accountant.

Obviously it needs to be a company contribution direct to the pension to count as a company expense and as such it's already offset against corp tax.