Reply to: Inside Ir35 and pensions

[northernladuk]

I'm currently outside but there is a tempting inside contract so I may switch. Figures are realistic.

I don't have a brolly at the moment, but I wouldn't take the contract if it meant I couldn't load up the pension to the max.

--Jatinder

Even with max pension and years before carry forward that's can be a huge amount of tax needs paying. You do right to do some detailed tax planning. It's an interesting situation but it strikes me it would have to be a huuuuge amount more than an outside gig to make it worth it. I think there is a figure of around 35% less when comparing an 450 inside/outside rate. If you are talking about 1200 a day that percentage difference must be huge.

Remember also to consider your paye already paid this year via the LTD. You've already used some of your allowance when doing your sums.

Paying an accountant for a detailed review could be very good value in your situation. The online PAYE calculators are notoriously unreliable and at those figures the percentage error could be massive.

[jatinder]

I'm currently outside but there is a tempting inside contract so I may switch. Figures are realistic.

I don't have a brolly at the moment, but I wouldn't take the contract if it meant I couldn't load up the pension to the max.

--Jatinder

[northernladuk]

I have a question about the maximum contribution that can be made into the pension (inside IR35, brolly etc).

If I was billing say £300K as an inside IR35 contractor could the brolly pay the full £60K into my pension, reducing my salary to £240K - which is below the £260K "adjusted income" level set by HMRC.

Or would I be restricted to a max contribution of £40K due to the tapering of the allowance?

I suppose I'm asking if the "brolly/employer" contribution to the pension forms part of the "adjusted income"?

Thanks,
--Jatinder

300k a year inside? Jesus. That's very high so have to ask is that a realistic figure or an overly high one for a theoretical example? Two inside gigs?

Have you considered the possibility of contributing to a scheme from previous years as well? You can contribute for three previous tax years which comes to a big number.
Your umbrella is your first point of contact as they are your employer and will also be able to tell you if this is even possible. Not all will allow that.

You probably don't have one but for sums that big I'd also be getting hold of an accountant to look at your options. I wouldn't be trusting some drone at a brolly to be well versed enough in tax law to get it right, particularly with those amounts.

[WTFH]

I have a question about the maximum contribution that can be made into the pension (inside IR35, brolly etc).

If I was billing say £300K as an inside IR35 contractor could the brolly pay the full £60K into my pension, reducing my salary to £240K - which is below the £260K "adjusted income" level set by HMRC.

Or would I be restricted to a max contribution of £40K due to the tapering of the allowance?

I suppose I'm asking if the "brolly/employer" contribution to the pension forms part of the "adjusted income"?

Thanks,
--Jatinder

A bit of an old thread to bump, but your first port of call is to ask your brolly if they are prepared to do that.
The second one would be to speak to your accountant to discuss the actual figures, because they will know what's going on from that point of view.

[jatinder]

I have a question about the maximum contribution that can be made into the pension (inside IR35, brolly etc).

If I was billing say £300K as an inside IR35 contractor could the brolly pay the full £60K into my pension, reducing my salary to £240K - which is below the £260K "adjusted income" level set by HMRC.

Or would I be restricted to a max contribution of £40K due to the tapering of the allowance?

I suppose I'm asking if the "brolly/employer" contribution to the pension forms part of the "adjusted income"?

Thanks,
--Jatinder

[mogga71]

Only if you were a member of a registered pension scheme in the years for which you wish to use the allowances (any scheme - doesn't have to be the one you want to pay into now.) But if you're not already a member of a pension scheme you can't just start one now and pay in £160k.

Cheers ..... didn't realise that .... it does make perfect sense though.

[Amanensia]

This means that if you start a pension now you can pay £120,000 (or £160,000) into it without paying any deductions at all. Personally I think it's a fantastic way to go about things when April comes.

Only if you were a member of a registered pension scheme in the years for which you wish to use the allowances (any scheme - doesn't have to be the one you want to pay into now.) But if you're not already a member of a pension scheme you can't just start one now and pay in £160k.

[mogga71]

Thanks to the OP for this thread, which has helped me clarify my thinking on this.

Long story short, I've been choosing to operate within IR35 for some years now. What this has meant is that the only 'tax breaks' I have had have been the 5% general allowance within the IR35 calculation, and the ability to make Employer's Pension Contributions into my SIPP, which as has been said here is very tax advantageous when operating inside IR35 as they are not included in the iR35 calculation which means the contribution doesn't attract PAYE tax, Employer's NICs or Employee's NICs. Far more tax advantageous than making employee's contributions.

Obviously given how I've been operating, the changes in April should have less effect on me BUT obviously there's all the market disruption which will affect all of us, including me. Initially I assumed that I'd still be able to operate the way I have been now but I quickly realised that my limited company will become redundant and I'll likely be forced into using a brolly (on the positive side, with the kind of roles I take there is a genuine possibility I get some outside roles, when of course I'll be quids in because I'll be better off than the way I currently run things!) but anyway, my thought process about brolly route was that I'd lose the 5% allowance (which is fine, I also lose the hassle of running a company and everything that goes with it... although also losing some autonomy which is a shame). But on investigating brollies I quickly realised that it's not common to offer the ability to make employer's contributions to a SIPP.

I'm happy to have read this thread and found out about a couple of brollies that DO offer this route and just generally been good to see somebody thinking the same way as me!

I don't really understand why more people haven't been making noise about this. It really should become the norm for brollies to offer this - it's certainly a big differentiating factor at the moment. I might be more dubious about it if I was in my 20s, but in my 40s and working in financial services my whole life (and therefore probably appreciating pension provision more than the average person) it's a great deal to me. As somebody else has said - better to whack a load of money in a pension than lose it to tax. And that has been my attitude for some years now. It would be nice not to lose that opportunity...

I met my agent and mentioned the salary sacrifice. Their eyes glazed over. They game me details about their IR35 hotline to get the real deal.. I contacted them and they completely missed the point and basically said that they wouldn't be able to do that if I go PAYE with them come next year. However, luckily they are allowing us to use third party umbrella companies instead so hopefully one of these will allow it.

I have recently mentioned this to about 10 contractors. None of them are really interested as they don't have a pension. Some of them are in their late 40's too.

Incidentally, you can actually backdate this for 3 years (possibly 4). This means that if you start a pension now you can pay £120,000 (or £160,000) into it without paying any deductions at all. Personally I think it's a fantastic way to go about things when April comes.

[Glencky]

Thanks to the OP for this thread, which has helped me clarify my thinking on this.

Long story short, I've been choosing to operate within IR35 for some years now. What this has meant is that the only 'tax breaks' I have had have been the 5% general allowance within the IR35 calculation, and the ability to make Employer's Pension Contributions into my SIPP, which as has been said here is very tax advantageous when operating inside IR35 as they are not included in the iR35 calculation which means the contribution doesn't attract PAYE tax, Employer's NICs or Employee's NICs. Far more tax advantageous than making employee's contributions.

Obviously given how I've been operating, the changes in April should have less effect on me BUT obviously there's all the market disruption which will affect all of us, including me. Initially I assumed that I'd still be able to operate the way I have been now but I quickly realised that my limited company will become redundant and I'll likely be forced into using a brolly (on the positive side, with the kind of roles I take there is a genuine possibility I get some outside roles, when of course I'll be quids in because I'll be better off than the way I currently run things!) but anyway, my thought process about brolly route was that I'd lose the 5% allowance (which is fine, I also lose the hassle of running a company and everything that goes with it... although also losing some autonomy which is a shame). But on investigating brollies I quickly realised that it's not common to offer the ability to make employer's contributions to a SIPP.

I'm happy to have read this thread and found out about a couple of brollies that DO offer this route and just generally been good to see somebody thinking the same way as me!

I don't really understand why more people haven't been making noise about this. It really should become the norm for brollies to offer this - it's certainly a big differentiating factor at the moment. I might be more dubious about it if I was in my 20s, but in my 40s and working in financial services my whole life (and therefore probably appreciating pension provision more than the average person) it's a great deal to me. As somebody else has said - better to whack a load of money in a pension than lose it to tax. And that has been my attitude for some years now. It would be nice not to lose that opportunity...

[Unother]

Contractor umbrella and Clarity Umbrella.

Thanks

[fidot]

The way employers implement pension contributions seems to vary greatly.
My current employer doesn't have a salary sacrifice scheme so I lose NI on my pension contributions. My previous employer had a salary sacrifice scheme AND paid the "saved" employer's NI into my pension too.
Big difference!

And yes, I do mean employer as I am currently on the dark side.

So my message is shop around when looking at how brolly companies implement pension contributions.

[psychocandy]

Im with brolly now.....

Get one that allows pension contribs out of gross. Its saves A LOT of tax/NI.

Basically, you're saving on employer NI, employee NI, tax so its over 50%. Better to chuck loads in the pension rather than lose it,

[mogga71]

Sorry, you are right, or partially. The savings on NIC from the employer should be passed onto your own pension.

So if your salary is 100k and you contribute 40% in the end of the year you should have on your pension pot 40k + NIC employer savings. Right?

Salary sacrifice calculator | WorkPlace pensions | Retirement

In that calculator if you set your salary to 100k and your pension contribution to 40% in the end your annual pension contribution will have an extra 5,520 that are the NIC employer savings.

Although there is a field 'Employer NI saving given up' that dunno if it has to be 100% or can be at employer discretion...

Yes I think you are correct. The 5520 obviously won’t also be in your pension .. it will be used as part of the salary element Ie. Everything after the 40k.

[CryingSheep]

I would expect a reputable Umbrella to work on the basis that they take their fee, and all other funds are extinguished by tax and NI deductions, other agreed deductions such as pensions, apprenticeship levy etc, and the remainder goes to the worker. So if the method of calculating a pension deduction results in a reduction in NI, that feeds through as extra salary. Otherwise any Umbrella that chose to pocket such a windfall would soon find itself at a pretty large competitive disadvantage.

Sorry, you are right, or partially. The savings on NIC from the employer should be passed onto your own pension.

So if your salary is 100k and you contribute 40% in the end of the year you should have on your pension pot 40k + NIC employer savings. Right?

Salary sacrifice calculator | WorkPlace pensions | Retirement

In that calculator if you set your salary to 100k and your pension contribution to 40% in the end your annual pension contribution will have an extra 5,520 that are the NIC employer savings.

Although there is a field 'Employer NI saving given up' that dunno if it has to be 100% or can be at employer discretion...

[Amanensia]

The other aspect of this is, when you make pension contributions by salary sacrifice, the employer also saves on NIC. I would guess that umbrella PAYE will work on a fix daily rate with the client so any savings on NIC will be extra profit for the umbrella?

Lets say you make 100k, you put 40% into pension the employer/umbrella saves 13.5% NIC contributions on 40k, that's still a lot of money if the umbrella can keep it! And if this is true, umbrellas should go crazy with the possibility of uncapped salary sacrifice contribution...

I would expect a reputable Umbrella to work on the basis that they take their fee, and all other funds are extinguished by tax and NI deductions, other agreed deductions such as pensions, apprenticeship levy etc, and the remainder goes to the worker. So if the method of calculating a pension deduction results in a reduction in NI, that feeds through as extra salary. Otherwise any Umbrella that chose to pocket such a windfall would soon find itself at a pretty large competitive disadvantage.