• Visitors can check out the Forum FAQ by clicking this link. You have to register before you can post: click the REGISTER link above to proceed. To start viewing messages, select the forum that you want to visit from the selection below. View our Forum Privacy Policy.
  • Want to receive the latest contracting news and advice straight to your inbox? Sign up to the ContractorUK newsletter here. Every sign up will also be entered into a draw to WIN £100 Amazon vouchers!

National Insurance on Pension Contributions

Collapse
X
  •  
  • Filter
  • Time
  • Show
Clear All
new posts

    National Insurance on Pension Contributions

    I pay a token amount from MyCo into my pension every month and am wondering if I am doing it in the best possible way, from April I will be taking a salary of £10k so no tax to pay and NI contributions of £20.44 personal and £23.51 employer per month, I then pay £280 per month into a pension so that my total gross is £13,360.00, still no tax to pay but NI goes up to £54.04 personal and £62.15 employers.

    Is this the correct way to do it? Is there a way I can make my pension non contributory as a lump sum at the end of the year so I don't pay the NI on it? Or will that then in turn become a BIK?
    Camnomis : Service Transition Consultants

    #2
    What did your accountant suggest?
    'CUK forum personality of 2011 - Winner - Yes really!!!!

    Comment


      #3
      Originally posted by northernladuk View Post
      What did your accountant suggest?
      Don't use one, so I guess I am asking my accountant by asking the learned congregation
      Camnomis : Service Transition Consultants

      Comment


        #4
        Originally posted by Camnomis View Post
        I pay a token amount from MyCo into my pension every month and am wondering if I am doing it in the best possible way, from April I will be taking a salary of £10k so no tax to pay and NI contributions of £20.44 personal and £23.51 employer per month, I then pay £280 per month into a pension so that my total gross is £13,360.00, still no tax to pay but NI goes up to £54.04 personal and £62.15 employers.

        Is this the correct way to do it? Is there a way I can make my pension non contributory as a lump sum at the end of the year so I don't pay the NI on it? Or will that then in turn become a BIK?
        Firstly, it is unlikely you will be paying any employers NI from April as there is a £2,000 NI incentive. If you do not work in IT and you perform 50% or more of your work in the public sector you may not be eligible, see details here:

        https://www.gov.uk/government/upload...A_Guidance.pdf

        I am unsure exactly what you mean regarding your monthly contributions of £280 but it does not make sense to make the contributions through your payroll if you have the choice. Make the payments from personal funds in order to avoid any NI complications.

        Martin

        Comment


          #5
          Originally posted by Martin at NixonWilliams View Post
          Firstly, it is unlikely you will be paying any employers NI from April as there is a £2,000 NI incentive. If you do not work in IT and you perform 50% or more of your work in the public sector you may not be eligible, see details here:

          https://www.gov.uk/government/upload...A_Guidance.pdf
          Thanks will take a look

          Originally posted by Martin at NixonWilliams View Post

          I am unsure exactly what you mean regarding your monthly contributions of £280 but it does not make sense to make the contributions through your payroll if you have the choice. Make the payments from personal funds in order to avoid any NI complications.

          Martin
          I have a direct debit from the MyCo's bank account to my pension provider for a set amount each month, I account for this by adding the amount to my gross wage so as not to pay Corp Tax on this amount, however I am lead to believe that this does incur National Insurance (subject to the above which I will take a look at)
          Camnomis : Service Transition Consultants

          Comment


            #6
            Originally posted by Camnomis View Post
            I have a direct debit from the MyCo's bank account to my pension provider for a set amount each month, I account for this by adding the amount to my gross wage so as not to pay Corp Tax on this amount, however I am lead to believe that this does incur National Insurance (subject to the above which I will take a look at)
            This is possible, but it is only really used in big organisations. If you wish to make personal contributions the best thing to do is simply pay the amount out of personal funds, you will automatically receive basic rate tax relief by only paying 80% of the contribution. If you are a higher rate taxpayer, additional relief can be claimed via your tax return.

            If you wish to make company contributions simply pay the contributions direct from your company account each month away from the payroll (make sure the pension provider is aware they are employer contributions), you will still receive corporation tax relief for the amounts paid.

            Comment


              #7
              Originally posted by Camnomis View Post
              Thanks will take a look



              I have a direct debit from the MyCo's bank account to my pension provider for a set amount each month, I account for this by adding the amount to my gross wage so as not to pay Corp Tax on this amount, however I am lead to believe that this does incur National Insurance (subject to the above which I will take a look at)
              If you had an accountant he would probably talk to you about the significant differences between personal pension payment and company ones and the advantages of the latter...

              HTH...
              Blog? What blog...?

              Comment


                #8
                Originally posted by malvolio View Post
                If you had an accountant he would probably talk to you about the significant differences between personal pension payment and company ones and the advantages of the latter...

                HTH...
                Indeed.
                Public Service Posting by the BBC - Bloggs Bulls**t Corp.
                Officially CUK certified - Thick as f**k.

                Comment


                  #9
                  Originally posted by malvolio View Post
                  If you had an accountant he would probably talk to you about the significant differences between personal pension payment and company ones and the advantages of the latter...

                  HTH...
                  In most cases it is better to pay into a pension personally up to the value of your salary and the remainder as company contributions.

                  For example, if you are a higher rate taxpayer paying a salary of £10,000 and the remainder as dividends the two key advantages of contributing personally would be:

                  - Many refer to the tax relief on contributions made by higher rate taxpayers as being 40%. This is only correct if your salary income is the reason for you being a higher rate taxpayer. If you are paying a small salary and the remainder as dividends, the higher rate tax relief is effectively a further 22.5% on top of the 20% relief gained at source, therefore 42.5% in total.

                  - Additionally, if you declare a dividend from the company for say, £8,000, and use this money to make a contribution then your basic rate band will be extended by £10,000. However, you will only have used £8,888 of the extra £10,000 allowance created by the pension contribution and could therefore extract a further dividend of £1112 (£1000 net) from the company tax free as a result.

                  Comment


                    #10
                    Originally posted by Martin at NixonWilliams View Post
                    In most cases it is better to pay into a pension personally up to the value of your salary and the remainder as company contributions.

                    For example, if you are a higher rate taxpayer paying a salary of £10,000 and the remainder as dividends the two key advantages of contributing personally would be:

                    - Many refer to the tax relief on contributions made by higher rate taxpayers as being 40%. This is only correct if your salary income is the reason for you being a higher rate taxpayer. If you are paying a small salary and the remainder as dividends, the higher rate tax relief is effectively a further 22.5% on top of the 20% relief gained at source, therefore 42.5% in total.

                    - Additionally, if you declare a dividend from the company for say, £8,000, and use this money to make a contribution then your basic rate band will be extended by £10,000. However, you will only have used £8,888 of the extra £10,000 allowance created by the pension contribution and could therefore extract a further dividend of £1112 (£1000 net) from the company tax free as a result.
                    Quite, the mantra of "company is best" can be an over simplification.

                    Given the limited information provided by the OP, and assuming they have a 10k personal allowance then:-

                    If they pay this 10k into a personal pension (or some of it) this will gain automatic credit of 20% thus resulting in a payment to the pension provider of 12,500. They will also get CT relief on it.

                    Thus on this "slice" of income for 10k gross corporate income they could end up with 12.5k in pension contributions.

                    Beyond that level of contribution - on the income stated with divis making up the balance - it is likely that corporate contributions are appropriate. Personal contributions wouldn't attract relief above 100% of salary.

                    It is not worth paying extra salary to make contributions due to the ni implication of this (even though ERs credit may apply there is still EEs to consider).

                    I don't really understand the reason for 13360 salary - though just seems arguably a bit wasteful of EE's NI. Though if the circumstances are such that there is a larger than normal tax code that could justify it.

                    From the description given of "still no tax to pay" it seems as though the OP may think they are corporate contributions, surely there would be tax to pay since it is just income (it's part of taxable income and as he has noted NI applies) - even though it is being handed over to the pension company. [They reclaim which makes the net effect zero of course].

                    Comment

                    Working...
                    X