Tax Treatment of pension contributions

Debt_Free_Chick

stamboy wrote: »

So in effect it's treated in the P&L as just another expense similar to salaries, rent, stationery, etc?

Yes - it's a legitimate business expense for the P&L and also an allowable deduction for tax.

How does the company claim the gross-up entitlement for the employee, if it pays the net amount direct to the employees pension fund. Or if it pays the gross top-up how does it claim the adjustment (gross-net) back?

The company doesn't claim anything for the employee's tax relief. The employee's contribution is deemed to be net of the personal rate of income tax at the basic rate. The pension provider claims this tax and pays it into the employee's pension. This is the system for a stakeholder or personal pension plan.

For example Co. X pays £1,000 into Employee A's pension direct.

What are the implications for the employee and company please?

Thanks again

In this example, only the company has incurred any expense. The company's expense is £1k and that is the deduction allowed for tax purposes. £1k is paid into the employee's pension and there are no other tax issues.

stamboy

Debt_Free_Chick wrote: »

In this example, only the company has incurred any expense. The company's expense is £1k and that is the deduction allowed for tax purposes. £1k is paid into the employee's pension and there are no other tax issues.

Thanks and what you're saying is the pension company would gross up the £1k @ 20% yes?

Debt_Free_Chick

stamboy wrote: »

Thanks and what you're saying is the pension company would gross up the £1k @ 20% yes?

No - only the employee's personal contibution is grossed up and only if the employee's contribution is in respect of a personal/stakeholder pension plan. In this case, the pension provider is acting as a tax collector for the basic rate of income tax.

Where the employer pays the contribution, the employer is also the "tax collector" but the (corporation) tax collected is claimed via the business expense deduction.