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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15758
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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, I am director of a company. I understand that my company

Resolved Question:

Hi, I am director of a company. I understand that my company can make an "employer contribution" to my SIPP that is classed as a business expense, and is free of any national insurance & personal income tax, and as a business expense would not pay corporation tax on the amount. Is that correct?
Does classing it as a business expense mean the amount is not classed as salary/payment to employee? Does it need to be entered in PAYE Basic Tools RTI as a payment to employee?
But I assume it would go on to my personal self-assessment form?
Finally, I can't see info out this on the HMRC site, can you advise as to where they have info about it?
Thanks very.
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi.

Let me take a look at this and I'll get back to you.
Customer: replied 1 year ago.

Hi Tony,
When I asked the question I understood from the web page it was going to be answered by
http://www.justanswer.co.uk/tax/expert-samtax/

I can see you have great success in answering tax questions, but can you outline your accountancy qualifications (which I can't see on your profile)?

Regards,

Matt

Expert:  TonyTax replied 1 year ago.

I've got 35 years experiece in tax and over £7,700 accepted answers here. There is nothing complicated about your question? Did you specifically ask for Sam? It doesn't appear that way as it would say if you did. If you did, I'm happy to opt out. I took my tax exams nearly 25 years ago but I don't have the letters after my name as I didn't become a member of the professional organisation. I didn't do the exam to join a club. Many qualified accountants have little tax knowledge though Sam isn't one of them.

Let me know how you wish me to proceed. I have my answer ready.

Customer: replied 1 year ago.

Hi,

I'm still learning how this system works...the site implied she was going to answer it (had her profile up as "wanting to answer my question"). But as long as you can provide the HMRC links/references for your answer then I'll accept it (otherwise I'd be worried in an audit I'd have to say to an HMRC officer "Well on a website I found, TonyTax said...").

FYI I will be out for rest of day.

Cheers,

Matt

Expert:  TonyTax replied 1 year ago.

OK, thanks. The message was a default. You got Sam. It could have been myself or another expert. I'll post my answer in a bit.

Expert:  TonyTax replied 1 year ago.
Hi again.

Your company will get corporation tax relief on a contribution to your SIPP. You won't pay tax or NIC on it, nor will the company pay employer's NIC on it.

The contribution is not part of your salary and doesnt' need to be disclosed in your tax return unless the total of your own contributions and those of your employer exceed £40,000 in the "pension input period" which ends in the tax year. Take a look here for more information on that.

As far as I'm aware, there is no requirment to report the contribution to an external pension plan in RTI reports. What does need to be reported can be found here.

I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.

Can you help me understand why this doesn't constitute salary (and therefore not have to be reported via PAYE RTI)? It seems really arbitrary that the same money can go into a pension pot labelled as an "employee contribution" and be subject to NI; or go in as an "employer contribution" and not be subject to NI. Why wouldn't companies pay into all employees pensions via "employer contribution" (the saved NI being able to increase the contribution)?

Finally, where is the specific HMRC page that says employer pension contributions are dealt with this way (treated as an expense not salary)?

Thank you for your help.

Expert:  TonyTax replied 1 year ago.
I'll have to get back to you on this in a bit.
Expert:  TonyTax replied 1 year ago.
Hi again.

I don't make the tax rules and I cannot tell you why things are done in the way that they are because it goes back into history. They just are what they are. Tax law is littered with what appear to be illogical rules.

RTI only started a couple of years ago and took over from the previous PAYE reporting system which ran for many years. When it started, few people had private pension plans, mainly the self-employed, and most people were in company pension schemes if they were in one at all.

Employers are encouraged by the tax system to contribute to a pension for an employee and so those contributions qualify for tax relief. If NIC was charged, it would be a disincentive.

Some employees don't want to be a member of an employer pension plan for any number of reasons. Some think that if they join a scheme, it will affect the amount they are paid because the employer is contributing extra money to a pension plan and there is some truth in that. There is also nothing to stop an employee sacrificing some salary and asking the employer to make an employer pension contribution equal to the gross pay sacrificed which will save the NI as well as the tax. Many employees do that with year end bonuses.

Take a look here for information on how employer pension contributions are treated for tax purposes. The sum of the salaries and employer NICs paid are also treated as tax deductible expenses.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15758
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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