Company contribution to employee SIPP- do HMRC need to know?
Discussion
Hopefully posting this in the right forum.
The situation I’d appreciate some help with is that of a Micro-Entity Company with 2 Directors, one of whom is the sole employee and the only revenue earner. We are looking to make a company pension contribution into that Director/Employee’s SIPP.
I understand that this is a recognised business expense for the company and as such not subject to corporation tax or Employer’s NI and that we need to inform the SIPP provider that this is a payment made by the employer.
Two questions on this that I hope someone here can answer:
Q1 Despite searching long and hard I can’t find any requirement or indeed method to report this payment to HMRC by any means other than appropriate inclusion in the annual accounts. Does anyone know if this is the situation; that is that no additional reporting of this payment is required by HMRC?
The HMRC user community forum covers several questions re Company SIPP contributions but none of the answers from HMRC staff have referenced the need for additional reporting of the payment (which will of course also be recorded by the SIPP provider).
Q2 Whilst the HMRC corporation tax form includes a separate input line for Director pension contributions, there is no such line for pension contributions to Employees and these would simply be included in the salary expenses input.
Are there any subtle differences between pension contributions to a Director’s SIPP v an Employee’s SIPP I should be aware of which might make one classification preferrable to the other?
Thanks in advance.
The situation I’d appreciate some help with is that of a Micro-Entity Company with 2 Directors, one of whom is the sole employee and the only revenue earner. We are looking to make a company pension contribution into that Director/Employee’s SIPP.
I understand that this is a recognised business expense for the company and as such not subject to corporation tax or Employer’s NI and that we need to inform the SIPP provider that this is a payment made by the employer.
Two questions on this that I hope someone here can answer:
Q1 Despite searching long and hard I can’t find any requirement or indeed method to report this payment to HMRC by any means other than appropriate inclusion in the annual accounts. Does anyone know if this is the situation; that is that no additional reporting of this payment is required by HMRC?
The HMRC user community forum covers several questions re Company SIPP contributions but none of the answers from HMRC staff have referenced the need for additional reporting of the payment (which will of course also be recorded by the SIPP provider).
Q2 Whilst the HMRC corporation tax form includes a separate input line for Director pension contributions, there is no such line for pension contributions to Employees and these would simply be included in the salary expenses input.
Are there any subtle differences between pension contributions to a Director’s SIPP v an Employee’s SIPP I should be aware of which might make one classification preferrable to the other?
Thanks in advance.
A director style contribution only saves the corp tax. An employee style contribution may be better if they are a higher rate tax payer.
However, a director contribution can be up to £60k a year while an employee is limited by the size of their salary.
For a director style contribution there is no need to tell HMRC, company or individual. There is no entry for it on self assessment. The company just reports it in the annual accounts where it’s treated as a pre tax expense as you correctly say.
One other thing is if you have a SIPP in place 3 years contributions can be carried forward so you could potentially put £180k in assuming you have the profit.
As you may know it’s highly likely these rules will change for the worse in the next budget.
However, a director contribution can be up to £60k a year while an employee is limited by the size of their salary.
For a director style contribution there is no need to tell HMRC, company or individual. There is no entry for it on self assessment. The company just reports it in the annual accounts where it’s treated as a pre tax expense as you correctly say.
One other thing is if you have a SIPP in place 3 years contributions can be carried forward so you could potentially put £180k in assuming you have the profit.
As you may know it’s highly likely these rules will change for the worse in the next budget.
Phooey said:
Thinking ahead here as quite likely to happen. If Labour introduce NI (13.8%?) on employer pension contributions, would it be better to take salary in the form of pay/dividends and contribute to SIPP personally?
In that scenario then the contribution will be liable to a 13.8% tax, but would get corporation tax relief.If you pay the salary, then you will still get the corp tax relief and still be subject to the NI.
If you pay by dividend you'd be subject to Corporation tax rates. (so 19 to 25% depending on profits)
TownIdiot said:
In that scenario then the contribution will be liable to a 13.8% tax, but would get corporation tax relief.
If you pay the salary, then you will still get the corp tax relief and still be subject to the NI.
If you pay by dividend you'd be subject to Corporation tax rates. (so 19 to 25% depending on profits)
Remember personal tax contributions receive a top-up from tax relief (in my case 20%)If you pay the salary, then you will still get the corp tax relief and still be subject to the NI.
If you pay by dividend you'd be subject to Corporation tax rates. (so 19 to 25% depending on profits)
MaxFromage said:
trickywoo said:
However, a director contribution can be up to £60k a year while an employee is limited by the size of their salary.
With regard to the employee, can you reference to the legislation, as I'm unaware of any specific rules restricting payments?They count towards the individuals total for tax relief purposes.
TownIdiot said:
MaxFromage said:
trickywoo said:
However, a director contribution can be up to £60k a year while an employee is limited by the size of their salary.
With regard to the employee, can you reference to the legislation, as I'm unaware of any specific rules restricting payments?They count towards the individuals total for tax relief purposes.
https://www.pensionbee.com/uk/pensions-explained/p...
trickywoo said:
Yes thats right, there is no limit but as you'll pay tax on excess contributions there are going to be very few circumstances where it isn't effectively a limit, even if you are technically allowed to do it.
https://www.pensionbee.com/uk/pensions-explained/p...
Are you suggesting that the company contribution can't ever exceeed the employees salary?https://www.pensionbee.com/uk/pensions-explained/p...
So take an example where the employee makes no conribution then the company pension contribution is limited to the level of salary paid?
Hopefully I'm not following you on this and the pensionbee quote (as are many) is unclear on the difference between employer and employee tax relief.
Pensionbee says:
"For 2024/25 the tax free annual limit is 100% of your salary or £60,000 (whichever is lower). This includes both contributions paid by you and contributions paid by your employer.
If you earn less than £3,600, or you don’t earn anything at all, you’re still allowed to receive tax relief on pension contributions up to £3,600 gross. That means you can save up to £2,880 net plus a 25% tax top up. You can still make employer pension contributions on top of this to bring you up to the ‘Annual Allowance’ of £60,000 though. Effectively this means that the total of your employer pension contributions + personal pension contributions + HMRC top ups cannot exceed £60,000 across the tax year. You can find out more about adding to a pension in special circumstances such as low income, high income or unemployment in our Pensions Academy video."
Although the first paragraph suggests your annual pension contribution total (you plus employer) can't exceed your salary contribution without tax implications, this seems to be contradicted here:
"You can still make employer pension contributions on top of this to bring you up to the ‘Annual Allowance’ of £60,000 though. Effectively this means that the total of your employer pension contributions + personal pension contributions + HMRC top ups cannot exceed £60,000 across the tax year. "
There is no mention of this giving further tax implications for the employee.
So my view is that you could have a situation as follows (assuming no lifetime implications):
Employee salary £30k, pension contibution £5k, employer pension contribution £55k making total pension contribution in the tax year £60k. In that case both the employee and employer contributions would be eligible for tax relief without any other tax issues for the employee or employer? The situation being the same for both a Director or employee?
Is this right or am I seriously mis-understanding something?
The Pensionbee doesn't specifically reference the treatment for Directors which is where it may be confusing.
It does however, say "If you exceed the limit, you’ll be eligible to pay tax on any amount over the contribution limit. This is called an ‘annual allowance charge’, and it will be added to the rest of your taxable income for the year when your tax liability is calculated."
It does however, say "If you exceed the limit, you’ll be eligible to pay tax on any amount over the contribution limit. This is called an ‘annual allowance charge’, and it will be added to the rest of your taxable income for the year when your tax liability is calculated."
So keeping it simple, a company pension contribution to a Directors sipp can exceed their salary in the year without tax implications for the employer or employee as long as the total contribution is no more than £60k and the director's contribution doesn't exceeed their salary.
If that's correct I can carry on as planned!
If that's correct I can carry on as planned!
Air Support said:
So keeping it simple, a company pension contribution to a Directors sipp can exceed their salary in the year without tax implications for the employer or employee as long as the total contribution is no more than £60k and the director's contribution doesn't exceeed their salary.
If that's correct I can carry on as planned!
That is correct.If that's correct I can carry on as planned!
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