Pension Contributions

[centurian]

Presumably because when outside IR35 you get 20% corporation tax "relief" on the contributions but if caught in IR35 that same pension contribution would probably have attracted relief at higher rate tax (40%). So this extra relief will go a small way to offsetting what they claim you owe.

It's effectively 49% because contributions from LtdCo are salary sacrifice, so come out before employers NI contributions. Strictly speaking there is no "relief" as such - it's just that it comes out of the calculation before it even reaches your payroll.

I am getting increasinly annoyed that "pensions tax relief" is being described as a "benefit" paid out of the government's coffers - and is coming under increasing attack as it is being described as a "beneift paid to the rich"

This is simply an accounting quirk, due to the way that pension providers "claim" the relief from the government - and it's only done that way to assist the poor that don't pay any tax - they can claim "relief" even if they are not earning much.

But describing the act of being allowed to keep some of your own money is hardly a "benefit payment", but that is how it is being spun.

[Fred Bloggs]

At the moment, if you're getting on a bit like me, putting as much as you can into a SIPP is a complete no brainer. Not only does it IR35 proof that money, but if you play about with the numbers on a website like Contractor Calculator you will see that it you can achieve a tax rate of about 15% on your turnover. This is as good as the dodgy off shore schemes we keep hearing about except it is on shore and contributing to a pension is actually (at the moment) positively encouraged by the government. It really doesn't get any better than that, IMO.

[centurian]

is actually (at the moment) positively encouraged by the government

Wouldn't count on that for much longer though. Looks like George is seriously toying with the idea of cutting higher rate relief - as it would raise £7bn per year - hitting middle class earners the hardest, yet most of the fools would still vote Tory anyway because they wouldn't notice it for about 10-15 years, much like what Gordon Brown did when he raped private sector pensions back in 1997 to help pay for public sector pensions.

If that does happen, they had better apply it to public sector final salary schemes as well. They are being asked to pay an extra 3% and are ready to strike over that. What happens when that becomes an extra 23% for higher rate taxpayers.

[Fred Bloggs]

I agree with you but as a Ltd Co contractor that simply isn't a concern unless they decide to outlaw company contributions on behalf of directors. TBH, I think using a SIPP to fund a pension from a Ltd Co is by far the biggest benefit of being a Ltd Co contractor right now.

[centurian]

Which wouldn't completely surprise me either - simply make all company contributions to a pension fund a fully taxable BIK - after which the 20% relief/benefit is still available, so basic rate taxpayers are no worse off.

But for now, let's enjoy it while it lasts.

[jlrowe]

Not that this is specifically contractor related, but you can pay into your childs pension, they will get 20% tax relief on a minimum contribution - even though they haven't had any earnings.

You can pay in £2800 and then an additional £800ish is claimed back from HMRC - this is per child.

[centurian]

I'm not an expect on this, but I believe yes, you can.

This is part of the reason why pensions tax relief is structured the way it is, so that very low earners can "benefit" from the relief - and also helps contribute to the perception that pensions tax relief is a benefit that is claimed, rather than simply being allowed to keep some of your own earnings.

[Fred Bloggs]

Yes, I pay £100 a month into a SIPP for both the kids.

[Scrag Meister]

One-off payments

With current projections of cash in by Ltd Account I am thinking of dumping a large one-off payment, £32k, into my pension to minimise CT come the end of the year to go hand in hand with my regular £1500 pm contribution, totalling £50k, the max. Shame really I could have added more.

Is this an acceptable move? or do HMRC frown on large one off payments?

[Craig@Clarity]

With current projections of cash in by Ltd Account I am thinking of dumping a large one-off payment, £32k, into my pension to minimise CT come the end of the year to go hand in hand with my regular £1500 pm contribution, totalling £50k, the max. Shame really I could have added more.

Is this an acceptable move? or do HMRC frown on large one off payments?

If it's a payment made for the purpose of retirement then it's fine rather than to gain a tax advantage. The one off payment along with your monthly contributions should be just be within the limits for this tax year. You may want to check with your pension provider or IFA as there maybe unused pension contribution allowances from previous tax years.