Contractor's pension

[amarkitanis]

Hi,

I'm quite new to this so your response will be highly appreciated.

I'm familiarising myself with the Basic PAYE Tool, and I'm about to make my first RTI submission.

I'm just wondering, when I include a pension under the 'net pay aggreement', the taxed amount does not include the pension, but it's included in the calculation for NI.

Is that right? I thought that pension is tax free and NI-free.

Am I wrong?

Thanks

[mudskipper]

You'd be better (and safer!) posting your question in the Accounting / Legal section. Our friendly accountants tend to hang out there and avoid General.

[amarkitanis]

anyone can help me move it there?

[cojak]

Done.

[ContrataxLtd]

Hi,

I'm quite new to this so your response will be highly appreciated.

I'm familiarising myself with the Basic PAYE Tool, and I'm about to make my first RTI submission.

I'm just wondering, when I include a pension under the 'net pay aggreement', the taxed amount does not include the pension, but it's included in the calculation for NI.

Is that right? I thought that pension is tax free and NI-free.

Am I wrong?

Thanks

Hi amarkitanis

Based on what you've said this sounds about right. Generally with a net pay agreement the pension is in effect a personal contribution with the tax relief given via your salary. However, personal pension contributions do not attract relief for National Insurance and as such aren't generally the best way to do things.

The whole tax efficiency of things depends on your exact circumstances but if you are paying a salary that is attracting NI you would probably be better reducing this down and then making a combination of personal and company contributions from there.

HTH

Martin
Contratax Ltd

[amarkitanis]

Hi Martin,

First of all thank you for replying.

I'm planning to pay myself £833.33 which my monthly personal allowance. The minute I add 500£ in pension, my taxable income remains 833, but my I have to pay NI on 833.33 + 500.

What's the best strategy to not pay NI on pension?

Hi amarkitanis

Based on what you've said this sounds about right. Generally with a net pay agreement the pension is in effect a personal contribution with the tax relief given via your salary. However, personal pension contributions do not attract relief for National Insurance and as such aren't generally the best way to do things.

The whole tax efficiency of things depends on your exact circumstances but if you are paying a salary that is attracting NI you would probably be better reducing this down and then making a combination of personal and company contributions from there.

HTH

Martin
Contratax Ltd

[ContrataxLtd]

Hi Martin,

First of all thank you for replying.

I'm planning to pay myself £833.33 which my monthly personal allowance. The minute I add 500£ in pension, my taxable income remains 833, but my I have to pay NI on 833.33 + 500.

What's the best strategy to not pay NI on pension?

You have two options, pay the £500 per month as a personal contribution from personal funds (this will give £625 into the pension pot after basic rate relief) or pay a company contribution direct from the company bank account (presumably £625 per month to give the same into the pension pot). Either way, you shouldn't need to involve the pension in the payroll calculations.

Best to run through all this with your accountant to ensure you are doing things as efficiently as possible as they will know your exact circumstances.

Martin
Contratax Ltd

[amarkitanis]

You have two options, pay the £500 per month as a personal contribution from personal funds (this will give £625 into the pension pot after basic rate relief) or pay a company contribution direct from the company bank account (presumably £625 per month to give the same into the pension pot). Either way, you shouldn't need to involve the pension in the payroll calculations.

Best to run through all this with your accountant to ensure you are doing things as efficiently as possible as they will know your exact circumstances.

Martin
Contratax Ltd

Ah so I don't need to involve Pension at all into PAYE. Excellent. Didn't know that. So effectively under RTI my salary will be 833.33 and no pension will be recorded as such. Correct?

[ContrataxLtd]

Ah so I don't need to involve Pension at all into PAYE. Excellent. Didn't know that. So effectively under RTI my salary will be 833.33 and no pension will be recorded as such. Correct?

Correct, keep things simple

Martin

[DigitalUser]

Hi,

I'm quite new to this so your response will be highly appreciated.

I'm familiarising myself with the Basic PAYE Tool, and I'm about to make my first RTI submission.

I'm just wondering, when I include a pension under the 'net pay aggreement', the taxed amount does not include the pension, but it's included in the calculation for NI.

Is that right? I thought that pension is tax free and NI-free.

Am I wrong?

Thanks

Dude, if you're unfamiliar with things like this, get an accountant. The cost incurred if you screw things up greatly outweighs the cost of a trained professional.