Employer's pension contribution from umbrella company

[IR35 Avoider]

Re your previous post, yes I meant in the case of running you r own Ltd Co. That's what I meant when I said that it had an element of farce (you as director write a letter to you as employee, detailing the company's new pension scheme; you as employee reply accepting the salary deduction in writing...). I thought it was amusing whan I did that, but my accountant took it with a straight face.

This is news to me, and I'm a bit skeptical. If you're right, then the PCG needs to update their advice on pensions urgently. Why did you come to the conclusion that this was necessary?

Are you sure that the fact I pay myself a salary means I have a contract of employment? That contradicts the consensus view here and at the PCG that directors don't have to pay themselves the minimum wage.

[ASB]

I think expat is making a more subtle point than you've appreciated, and he may be right. My wife has used salary sacrifice to reduce her taxable salary and get bigger pension contributions from her employer. Each year in February she has to tell them what percentage of her nominal salary she wants to sacrifice, that then applies to the whole of the subsequent financial year and cannot be changed. Although this could be purely to ease admin, I think it is really because of the sort of legal issues expat is talking about.

Edit: what would be really interesting is whether the agreement could be of the form, pay me up to X in salary over the year, and pay any surplus fee I generate into a pension. This would probably suit contractors working through an umbrella company better than specifying a percentage, and I can't see why it wouldn't be acceptable.

To me what seems to be said is - by example:-

You agree a 20k salary. Then you agree that the employER will make 15k of pension contributions and you will only have a 5k salary.

but you can't agree a 5k salary and the employer then also contributes 15k to your pension fund.

Certainly the 10% my employer contributes for me is nothing whatsoever to do with salary sacrifice. But the 5% contributed as the employee contribution is salary sacrifice. It affects the NI treatment of this portion of the salary, that is all.

I don't beleive there is anything whatsoever stopping my employer from making additional employee contributions if it feels like it. [When still contracting I used to do this all time when I had spare cash in the company, never had any problems - but that doesn't mean it was correct of course.]

[IR35 Avoider]

To me what seems to be said is - by example:-

You agree a 20k salary. Then you agree that the employER will make 15k of pension contributions and you will only have a 5k salary.

I agree that is salary sacrifice, assuming you initially had a contract of employment under which your employer was legally obliged to pay you 20K salary. When you agreed to change things, you agreed to change the contract.

but you can't agree a 5k salary and the employer then also contributes 15k to your pension fund.

Assuming this is what you mean, then I think you are agreeing that expat is right, that if you just ask your employer to pay a chunk of money into a pension instead of salary, without formally varying the contract of employment, that is not salary sacrifice, because it is at your discretion/direction that the payment is made, and not because of a binding legal obligation.

Certainly the 10% my employer contributes for me is nothing whatsoever to do with salary sacrifice. But the 5% contributed as the employee contribution is salary sacrifice. It affects the NI treatment of this portion of the salary, that is all.

I think you are a little confused here. An employee contribution is never a salary sacrifice contribution. A salary sacrifice contribution is an employer contribution that the employer makes in return for being allowed to pay you less salary. Not all employer contributions are salary sacrifice contributions. My wife gets a minimum employer contribution of 5% of salary even if she has 0% salary sacrifice

I don't beleive there is anything whatsoever stopping my employer from making additional employee contributions if it feels like it. [When still contracting I used to do this all time when I had spare cash in the company, never had any problems - but that doesn't mean it was correct of course.]

There's no problem with your employer making contributions you weren't contractually entitled to - this is like giving you a bonus or a pay rise. The problem with employer contributions only potentially occurs when the contribution is linked to a cut in salary. I assumed the problem wasn't relevant to contractor directors because we don't (usually) have contracts of employment to be varied. I'm waiting for expat to throw further light on why he disagrees.

[ASB]

There's no problem with your employer making contributions you weren't contractually entitled to - this is like giving you a bonus or a pay rise. The problem with employer contributions only potentially occurs when the contribution is linked to a cut in salary. I assumed the problem wasn't relevant to contractor directors because we don't (usually) have contracts of employment to be varied. I'm waiting for expat to throw further light on why he disagrees.

The penny has - finally - dropped.

[expat]

I agree that is salary sacrifice, assuming you initially had a contract of employment under which your employer was legally obliged to pay you 20K salary. When you agreed to change things, you agreed to change the contract.Assuming this is what you mean, then I think you are agreeing that expat is right, that if you just ask your employer to pay a chunk of money into a pension instead of salary, without formally varying the contract of employment, that is not salary sacrifice, because it is at your discretion/direction that the payment is made, and not because of a binding legal obligation.I think you are a little confused here. An employee contribution is never a salary sacrifice contribution. A salary sacrifice contribution is an employer contribution that the employer makes in return for being allowed to pay you less salary. Not all employer contributions are salary sacrifice contributions. My wife gets a minimum employer contribution of 5% of salary even if she has 0% salary sacrifice
There's no problem with your employer making contributions you weren't contractually entitled to - this is like giving you a bonus or a pay rise. The problem with employer contributions only potentially occurs when the contribution is linked to a cut in salary. I assumed the problem wasn't relevant to contractor directors because we don't (usually) have contracts of employment to be varied. I'm waiting for expat to throw further light on why he disagrees.

Apologies for not replying.

I take your point about directors not having a contract to vary in the first place. Perhaps I am being overly cautious (or just plain wrong), but it does seem to me that:
1. although the employer can make employer pension contributions any time;
2. if the employer makes a pension contribution at the same time as paying less salary by a corresponding amount, that is liable to be taken by HMRC as being not an employer contribution but an employee contribution executed by the employer on the employee's behalf;
3. but if this (no. 2) is a proper "salary sacrifice" then it is accepted as an employer contribution.

The difference of course being that an employee contribution is liable to NICs.

[expat]

....

PS I came across this (and realised that I hadn't replied) in the course of looking through past posts on pensions, and I'd like to add that I appreciate some of the posts you've made.

[barani76]

I was re-inventing the wheel, doing th same thing Fred Scuttle was doing. having my own umbrella company to pay into pensions by salary sacrifice.

Looking at the discussions, did people figure out how to work out a salary sacrifice scheme. If the the employee instructs the company to transfer money to pension scheme is not correct, can it not be done at all.