Pensions

[Wesdev]

I pay a contribution every month to a stakeholder pension (in my name) directly from my business account.

What way is this taxed?

I'm getting conflicting info.

My accountant says - as i didnt tell him it wasnt a company pension scheme every payment would have to be taken as a dividend as it was a personal expense? Then i can reclaim the 20% personal tax relief on it.

Where as another contractor says its a company expense? So my employee contribution is 0.

Whats the correct solution?

[pmeswani]

I pay a contribution every month to a stakeholder pension (in my name) directly from my business account.

What way is this taxed?

I'm getting conflicting info.

My accountant says - as i didnt tell him it wasnt a company pension scheme every payment would have to be taken as a dividend as it was a personal expense? Then i can reclaim the 20% personal tax relief on it.

Where as another contractor says its a company expense? So my employee contribution is 0.

Whats the correct solution?

Wesdev.

Without knowing the type of contributions you are making, it is difficult to give you an accurate answer on this. However, you need to consider the following:

If you are making an employee contribution, then you can ask your Accountant if they can backdate the contributions via PAYE to when you have started making the contributions and pay the tax on top.

If they cannot do that (which is probably the case), then may want to ask the Accountant to show that you are taking a nil salary (and stop taking a salary for the time being) and record a 100% pension contributions via PAYE until such a time that you are up to date with the amount you have contributed (may be a bit risky, and may not be legit).

If the accountant is not able to do that, then you will need to declare the contributions as an employer contributions (which is paid gross and not tax claimable, in which case you need to inform the pension provider accordingly) or out of your dividends (which is paid gross).

Your company is entitled to make pension contributions to your pension which has to be paid gross. The only benefit is that your company saves some money on Corporation Tax on the amount your company pays at the end of the year.

As I said earlier, I don't know what type of contributions you are making, but I hope the above makes sense.

[Billy Pilgrim]

Wesdev.

Without knowing the type of contributions you are making, it is difficult to give you an accurate answer on this. However, you need to consider the following:

If you are making an employee contribution, then you can ask your Accountant if they can backdate the contributions via PAYE to when you have started making the contributions and pay the tax on top.

If they cannot do that (which is probably the case), then may want to ask the Accountant to show that you are taking a nil salary (and stop taking a salary for the time being) and record a 100% pension contributions via PAYE until such a time that you are up to date with the amount you have contributed (may be a bit risky, and may not be legit).

If the accountant is not able to do that, then you will need to declare the contributions as an employer contributions (which is paid gross and not tax claimable, in which case you need to inform the pension provider accordingly) or out of your dividends (which is paid gross).

Your company is entitled to make pension contributions to your pension which has to be paid gross. The only benefit is that your company saves some money on Corporation Tax on the amount your company pays at the end of the year.

As I said earlier, I don't know what type of contributions you are making, but I hope the above makes sense.

Another benefit is that it is a good way to hoard a bit away if you feel you are IR35 caught.

[FarmerPalmer]

My accountant says - as i didnt tell him it wasnt a company pension scheme every payment would have to be taken as a dividend as it was a personal expense? Then i can reclaim the 20% personal tax relief on it.

Whats the correct solution?

change your accountant.

An employer may make payments directly into an employees stakeholder pension, and this is a business expense. So no tax to pay on this money by the business, and no tax to reclaim by the pension provider.

[Retro]

change your accountant.

An employer may make payments directly into an employees stakeholder pension, and this is a business expense. So no tax to pay on this money by the business, and no tax to reclaim by the pension provider.

Quite right.
No income tax to pay on an employer's contribution.
No employer's NI to pay on an employer's contribution.
No employee's NI to pay on an employer's contribution.
No corporation tax to pay on an employer's contribution.
A large payment will make your IR35 status irrelevant.
But...
The pension money will not be available until aged 50 (just changing to 55).

[Wesdev]

change your accountant.

An employer may make payments directly into an employees stakeholder pension, and this is a business expense. So no tax to pay on this money by the business, and no tax to reclaim by the pension provider.

how is this then recorded?

On my paye payslip?

[bananarepublic]

Make sure the pension company knows that it is an employer contribution as they will have to stop claiming the 20% basic rate tax top up to the pension.

Employers contributions are a company expense and offsettable against profits. They are not a personal benefit in kind so don't need to be recorded on payslips etc. (Dunno about the new rules if you are drawing more than 150K salary though!)

If you are on PAYE only (no divis) it is much more tax (well NI) efficient for the employer to pay the pension contributions because when making personal contributions the NI component of PAYE isn't reclaimable - only the tax.

[Wesdev]

reply from accountant...

- Is the stakeholder scheme run by Ltd Company? (If so any Employee contributions should have been collected through the payroll)

Answer: NO

- Are the payments made net of basic rate tax (as suggested in the email from your Financial Advisor and higher rate tax relief to be claimed in your tax return)?

- If, as you suggest, the contributions are 100% employer’s (direct debit from ltd company to pension account) contributions then they will not be paid net of basic rate tax and so no higher rate tax relief will need reclaimed through your individual tax return.

So was the accounant right?

[pmeswani]

- Is the stakeholder scheme run by Ltd Company? (If so any Employee contributions should have been collected through the payroll)

Answer: NO

- Are the payments made net of basic rate tax (as suggested in the email from your Financial Advisor and higher rate tax relief to be claimed in your tax return)?

- If, as you suggest, the contributions are 100% employer’s (direct debit from ltd company to pension account) contributions then they will not be paid net of basic rate tax and so no higher rate tax relief will need reclaimed through your individual tax return.

So was the accounant right?

Yes. Employers contribution is paid as gross, not net. By claiming that you are making net contributions as employers contributions can be deemed as theft as you are effectively paying contributions from your company's profits. So either tell your Accountant to update your Payslips and PAYE from previous months to show the contributions as PAYE, or tell your Pension Provider that you have made a mistake in your declaration to them.