Deemed income calculation and pension cross FY

[Tubazilla]

All,

I am having a big dispute with with accountant about my deemed payment calculation.

I have been trading since Feb 1st this year and am INSIDE of IR35. The issue:
- my business received income prior to the end of March
- I pay my pension directly from the business account - the DD being taken around the 3rd week of the following month
- since I pay the pension direct I view it as a salary sacrifice
- my accountant is insisting that because the pension wasn’t taken by my pension provider prior to April 5th the funds reserved for that need to be taken as income for deemed payment calculation purposes and therefore for me to pay tax and NI on it.
- if I take that as income then I won’t have the funds to make my pension payment and I can’t believe the legislation intends this sort of madness anyway
- I spoke to the IR35 helpline and they’re with me - the pension funds can be accounted as pension and therefore doesn’t have to be treated as income
- despite this my account insists that she is correct

Help! What actually is correct here?

We’re not talking a small amount here - my pension is £833.33 for the month and due to previous earnings I am over £400 down in the tax and NI I had to pay last week on deadline day...

[GhostofTarbera]

What IR35 helpline did you call ?


Sent from my iPhone using Contractor UK Forum

[Tubazilla]

IR35 helpline

What IR35 helpline did you call ?


Sent from my iPhone using Contractor UK Forum

this one directly at HMRC:

Phone
Call HMRC for help with IR35 enquiries.

Telephone:
0300 123 2326

[ContrataxLtd]

All,

I am having a big dispute with with accountant about my deemed payment calculation.

I have been trading since Feb 1st this year and am INSIDE of IR35. The issue:
- my business received income prior to the end of March
- I pay my pension directly from the business account - the DD being taken around the 3rd week of the following month
- since I pay the pension direct I view it as a salary sacrifice
- my accountant is insisting that because the pension wasn’t taken by my pension provider prior to April 5th the funds reserved for that need to be taken as income for deemed payment calculation purposes and therefore for me to pay tax and NI on it.
- if I take that as income then I won’t have the funds to make my pension payment and I can’t believe the legislation intends this sort of madness anyway
- I spoke to the IR35 helpline and they’re with me - the pension funds can be accounted as pension and therefore doesn’t have to be treated as income
- despite this my account insists that she is correct

Help! What actually is correct here?

We’re not talking a small amount here - my pension is £833.33 for the month and due to previous earnings I am over £400 down in the tax and NI I had to pay last week on deadline day...

Hi Tubazilla

I'm with your accountant on this one, the IR35 deemed calculation is done on a cash basis so can only take into account monies received and expenses paid up to and including 5th April each year. You won't miss out on the benefit of the pension contribution, you will just receive it in the current year instead although depending on earnings the benefit could be less this year or it could be more.

Martin
Contratax Ltd

[Tubazilla]

Hi Tubazilla

I'm with your accountant on this one, the IR35 deemed calculation is done on a cash basis so can only take into account monies received and expenses paid up to and including 5th April each year. You won't miss out on the benefit of the pension contribution, you will just receive it in the current year instead although depending on earnings the benefit could be less this year or it could be more.

Martin
Contratax Ltd

Thanks Martin...

if that is correct is raises several issues for me:
- if I take it as taxable income I won't have the funds to make the pension payment
- if I do take it as taxable income and I pay myself that salary it will actually have to come out of April rather than March income and I'm not sure I'll have enough funds to do that either
- what is the impact on my P60?

I am struggling to believe how cretinous this legislation is... it would be so much easier if there was an element of trust that said - these funds are ring fenced for pension... clear, simple, unambiguous

[northernladuk]

I am struggling to believe how cretinous this legislation is... it would be so much easier if there was an element of trust that said - these funds are ring fenced for pension... clear, simple, unambiguous

HMRC have pages of written legislation and its still not clear and unambiguous so can't really see how an element of trust is going to work.

[Tubazilla]

So I finally spoke with someone at HMRC who knew what they were talking about and it seems my accountant is correct.

It's obviously more important to tie things up neatly at the end of the tax year and force you to take income in a way you don't want to!

I will be adjusting my pension DD to the 3rd of the month from June onwards simply to avoid this anachronism next year.

Hope this helps some fellow contractors out there to avoid this trap next year!

[ContrataxLtd]

Thanks Martin...

if that is correct is raises several issues for me:
- if I take it as taxable income I won't have the funds to make the pension payment
- if I do take it as taxable income and I pay myself that salary it will actually have to come out of April rather than March income and I'm not sure I'll have enough funds to do that either
- what is the impact on my P60?

I am struggling to believe how cretinous this legislation is... it would be so much easier if there was an element of trust that said - these funds are ring fenced for pension... clear, simple, unambiguous

You don't have to actually withdraw all the money owed to you as salary under the deemed payment, you can leave an element in the company to cover next months pension etc. You may also want to change the payment date of your pension so that it falls on or before 5th April each year (just take note of weekends etc.)

Martin
Contratax Ltd