Is IR35 double taxation on pension contributions?

[northernladuk]

The client would know if you tell them...

As for the rest of your article - there was an argument in that rant it's a shame you didn't actually find it...

But presented it anyway so, potentially, managing to do more harm than good. Something that is usual with these types of situations where people who don't fully understand what is going fail to put it together in anything like a meaningful argument.

The entire contracting community thanks you for helping making it even harder from them.

Keep up the good work... :

Any chance you can recall your message?

This...

[Manic]

Just sent this to the house of lords inquest into IR35. there is a public request for evidence:

My Lords,

I believe that there is a fundamental problem with the legislation as proposed that relates to how independent contractors manage their pension provision.

We receive no pension contributions from our clients, one of the advantages to them of using independent specialists.

This means that pension contributions have to be made from our personal service companies into schemes managed by ourselves.

The response to the proposed legislation, from almost every major employer of IT contractors in the UK, has been to refuse to make IR35 assessments and demand that contractors either leave or join the payroll paying tax via PAYE and the net amount being paid to either the account of the personal service company or the contractor personally. It makes no difference.

Contractors will have no rights to join company pension schemes because we are not “employees” despite the blanket ban approach claiming that for some purposes, we are. Companies, you can be assured, will not make pension contributions on our behalf when we all have different schemes and arrangements, that would impose an unbearable administrative burden.

The inevitable result will be that, on joining PAYE I will be forced to pay income tax and national insurance on my pension contributions before I am able to pay them into my pension pot.

Under a ‘net pay’ pension scheme pension contributions are deducted before the calculation of tax. Under a ‘relief at source’ scheme the pension contribution is deducted after tax is calculated and HM Revenue & Customs (HMRC) later send the value of the tax relief to the pension scheme.

Neither of these arrangements are feasible under the proposed legislation. The client cannot know the proportion of my earnings I intend to contribute to my pension scheme and cannot therefore correctly calculate the taxable amount.

The costs to HMRC of administering tax refunds to the individual pension arrangements of anyone working under the proposed legislation would be significant and I cannot imagine that these have been factored into the calculations behind this legislation. HMRC I am sure, would refuse to make up the tax as they would for a genuine employee. This is, again, an unbearable administrative burden.

On withdrawing money from my pension scheme, I would at that point be paying income tax on it a second time.

The legislation and response from the private sector introduces double taxation, applicable only to contractors. This is neither moral, legal, nor the intention of the government and must be addressed before this legislation can, as we say in Information technology, “Go Live”.

You are confused.

Pension at source or to use the correct term Salary Sacrifice is where payments are made before income tax AND NI. It results in small additional contribution equal to the NI saved.

If you are not part of a salary sacrifice scheme, and many perm jobs are not, then your employer deducts from your salary and that is then grossed up at your marginal rate of income tax to. Net result is for every £1 you put in the tax man contributes 20% (lower rate) or 40% (higher rate).

If neither apply and you put in net money from salary you can claim the tax relief back in your annual SA return.

No option leads to double taxation. Any chance you can recall your message?

[eek]

The client cannot know the proportion of my earnings I intend to contribute to my pension scheme and cannot therefore correctly calculate the taxable amount.

The client would know if you tell them...

As for the rest of your article - there was an argument in that rant it's a shame you didn't actually find it...

[northernladuk]

Are you absolutely sure all that is completely and factually correct?

Really... Really sure?

[remoore]

Just sent this to the house of lords inquest into IR35. there is a public request for evidence:

My Lords,

I believe that there is a fundamental problem with the legislation as proposed that relates to how independent contractors manage their pension provision.

We receive no pension contributions from our clients, one of the advantages to them of using independent specialists.

This means that pension contributions have to be made from our personal service companies into schemes managed by ourselves.

The response to the proposed legislation, from almost every major employer of IT contractors in the UK, has been to refuse to make IR35 assessments and demand that contractors either leave or join the payroll paying tax via PAYE and the net amount being paid to either the account of the personal service company or the contractor personally. It makes no difference.

Contractors will have no rights to join company pension schemes because we are not “employees” despite the blanket ban approach claiming that for some purposes, we are. Companies, you can be assured, will not make pension contributions on our behalf when we all have different schemes and arrangements, that would impose an unbearable administrative burden.

The inevitable result will be that, on joining PAYE I will be forced to pay income tax and national insurance on my pension contributions before I am able to pay them into my pension pot.

Under a ‘net pay’ pension scheme pension contributions are deducted before the calculation of tax. Under a ‘relief at source’ scheme the pension contribution is deducted after tax is calculated and HM Revenue & Customs (HMRC) later send the value of the tax relief to the pension scheme.

Neither of these arrangements are feasible under the proposed legislation. The client cannot know the proportion of my earnings I intend to contribute to my pension scheme and cannot therefore correctly calculate the taxable amount.

The costs to HMRC of administering tax refunds to the individual pension arrangements of anyone working under the proposed legislation would be significant and I cannot imagine that these have been factored into the calculations behind this legislation. HMRC I am sure, would refuse to make up the tax as they would for a genuine employee. This is, again, an unbearable administrative burden.

On withdrawing money from my pension scheme, I would at that point be paying income tax on it a second time.

The legislation and response from the private sector introduces double taxation, applicable only to contractors. This is neither moral, legal, nor the intention of the government and must be addressed before this legislation can, as we say in Information technology, “Go Live”.