Company vs personal pension when under IR35

**northernladuk** · 12 August 2021, 16:14

I assume you mean you are deemed inside not under? There is no under, it's inside or outside.

Which is it?

Pensions have been covered heavily on here and there are tons of google resources on contractor pensions. Search the forum by typing the following in to google.

Pension site:contractoruk.com/forums

You can play around with the keyword and use multiple ones if your question is more specific i.e. inside ir35 pension etc.

**Paralytic** · 12 August 2021, 16:20

Assuming you mean inside IR35, are you proposing making deemed payments to your Ltd company? From where are you proposing to pay the EE NI and Income Tax? Have you looked into working via an Umbrella?

And 5% expenses? Are you aware of the rules around expenses if inside IR35?

**Madb1lly** · 15 August 2021, 14:06

Hi everyone,

Obviously I wrote this in a very confusing way.

I mean I'm working on a contract deemed inside IR35. My Ltd receives payments from the client for my services. This is my ltd's only client at the moment and it's my only income bar a small amount of rental income. This is the only income I've got in the UK this tax year.

About the 5% expenses: My understanding from this page https://www.gov.uk/guidance/how-to-c...oyment-payment is that to calculate the deemed payment I start by removing 5% of the amount received from the client, "You then apply a flat rate 5% deduction from this income for general expenses incurred in running the business. You do not need to demonstrate this expenditure." I understand that this is not the same as expenses related to the engagement with the client.

Yes I looked into working under an umbrella and couldn't find one that had reasonable charges for my situation, which is worked for a US client in the nuclear energy industry.

I'm asking about payments into a pension and indirectly trying to understand how pension payments affect the calculation of the deemed payment. I have spent a long time reading pages on this forum and elsewhere and not found anything which directly addresses my query, hence why I asked the question. If you know where someone else has already asked this specific question then I obviously haven't found it, please give me the benefit of the doubt and give me the link to that page, thanks. Otherwise, I really appreciate you all sharing the benefit of your experience with me.

I'll try and ask more clearly this time. I'm trying to work out what to do about pension payments when working inside IR35. I've read a lot of stuff online about being able to claim tax relief when paying into a personal pension but not really found anything about how it works if the ltd runs a workplace pension and how this affects the deemed payment, nor found much about how it compares to a personal pension from a total employment taxes point of view.

Basically, I'm asking which has the biggest reduction in taxes paid - the ltd paying into a workplace pension or me paying into a personal pension (or the ltd paying into a personal pension on my behalf) - and how this works when calculating the deemed payment. My feeling from what I've read is that a personal pension is the best option but I've not found anything online which compares the two directly.

I also confused matters in my original question by asking if that 5% expenses which is deducted when calculating the deemed payment can be used to pay into a workplace pension - I probably won't do this though, I think it makes more sense to use it to pay my wife for the ltd-related admin she does as it won't take her over the personal allowance.

I know I could pay an accountant or an IFA to work out the detail and I probably still will at some point, but before that I want to make sure I've fully understood the different options.

Thanks

**northernladuk** · 15 August 2021, 23:28

About the 5% expenses:

I thought this got scrapped for public sector awhile ago and scrapped for private sector ones this year? The article you link was last update 2019

This article appears to confirm it's gone.
https://www.contractoruk.com/news/00...ntractors.html

I think it makes more sense to use it to pay my wife for the ltd-related admin she does

Which will be none so doesn't make sense to pay her for nothing.

**eek** · 16 August 2021, 06:10

You need an umbrella to maximise your pension payments as you get receiving deemed payments.

If your end client was a small company with the small company exception then you don't have a problem (and you will still have that 5% allowance and receive the full sun of money, otherwise it's deemed payment with NI already deducted).

The fact you can't find a cheap umbrella means I have to ask what you do you mean by cheap?

As for your deemed payments and pension payments, that's just not possible, it's why we say use an umbrella as that is the only means of paying into your pension before the tax man takes their NI cut.

**Madb1lly** · 16 August 2021, 08:42

Hi,

I didn't say cheap umbrella I said reasonable charges. I didn't find one and that ship has now sailed, I'm working via my ltd.

Saying "not possible" without an explanation isn't very helpful. What are the special rules for pension payments only for umbrella companies that are not available to PSC Ltds?

Thanks,

PS - The client is US based and they won't be paying more to take account of IR35 or anything. If the client is foreign with no UK presence then I think it makes no difference whether they're pubic/private big/small, but for the purposes of this discussion they are small and private. As far as I understand my Ltd is functioning just as an umbrella company would so I don't understand how on earth an umbrella could be more cost effective given that there's the pyramid scheme of accountants and managers in there who all need to take their cut.

**JHamp82** · 16 August 2021, 15:10

As far as I understand your Limited company can pay into pension as an employer contribution which will be deducted as an allowable deduction before Employer NI & salary is calculated and this is in addition to the 5% allowance if there is one in your situation.

Best speaking to an accountant as they would know better.

**jamesbrown** · 16 August 2021, 16:47

If the OP is correct about the small company exemption, then it's business as usual or "old IR35" (i.e., Chapter 8). If the client is a small company or the supply chain is fully overseas, then there's no issue with claiming the 5% allowance (first thing deducted) and there's no issue with making company pension contributions. If, however, the "new IR35" applies (i.e., Chapter 10), then YourCo would be receiving deemed payments from the Fee Payer, so there's nothing to be done. In that situation, the only/best option is an umbrella w/ salary sacrifice.

**Madb1lly** · 16 August 2021, 20:28

Hi all,
Yes the supply chain is fully overseas, no UK entity whatsoever except for me and my ltd. Thanks for clarifying about the situation when an umbrella makes more sense.

Okay so it's chapter 8 which provides the detail, thanks.

So going back to my original question, does it make sense for my ltd to pay employer contributions into a workplace pension vs my paying into a personal pension? If I understand right, my ltd would save employer's NI which is 13.8% but if I pay into my personal pension I'll be able to get tax relief of 40%, so it doesn't seem to make sense to have a workplace pension.

Can anyone point to a simulator/calculator which can confirm to me how it works, which amounts get taxed and what rate pre and post salary pre and post pension payment?

Cheers

Company vs personal pension when under IR35