Can I reduce my NI contribution by paying into a SIPP?

Admoneyandstuff

If so, how would I go about doing this?

molerat

No. The only way to reduce your NI is to be part of a salary sacrifice pension scheme.

Admoneyandstuff

Ok, thank you.

dunstonh

Theoretically, SIPPs can be used but it depends on the scenario. It always needs the employer to support it and most will not unless in management and smaller in size.

Why would an employer of hundreds make a special case for you. If they do it for you they have to offer it to others and they are not going to want to do hundreds of individual payments each month. Hence why its normally only done via the workplace scheme as molerat mentions.

Another scenario is where you are a shareholding director of own company and your accountant has you, for some bizarre reason, paying NI. you can use a SIPP then to reduce the NI. However, if you are paying NI, I would look to change the accountant first.

lisyloo

Admoneyandstuff wrote: »

If so, how would I go about doing this?

Try to persuade your employer to do salary sacrifice if they don't.
You save your NI which is 12% (of the sacrificed amount)

They save employers NI at 13.8%.


If you are trying to sell this to your employer then perhaps suggest at 50/50 split i.e. they gain 6.9% and employess gain 6.9%. That's a win-win.


Mine goes into a SIPP but it's not related.
Salary sacrifice affects the tax treatment that is applies.
A SIPP is a person pension that receives the money.
They are independent of each other.

gdrforest

If you are a director and only employee of a Ltd company, such as an IT contractor then this is the perfect way to avoid all taxes , if you are lucky enough to be outside of IR35 the situation is different.

Brynsam

gdrforest wrote: »

If you are a director and only employee of a Ltd company, such as an IT contractor then this is the perfect way to avoid all taxes , if you are lucky enough to be outside of IR35 the situation is different.

Avoid all taxes...really? How about corporation tax on the company's profits and income tax on (most of) the dividends you receive...?

Luck doesn't come into it with IR35.

lisyloo

Avoid all taxes...really?

I think the poster meant you don't pay taxes on the amount you put into your pension (I read it the same way as you initially).
So if you put £40K into a SIPP and you're outside IR35 then you pay no corp tax(?), income tax or NI on the £40K.


There are limits to everything, so once youve put £40K into a SIPP, filled your basic rate tax band with divs and your spouses basic rate tax band with divs and your tax free bit. then you have no choice to pay tax, but many would argue if your earning over £110K that it's a lovely 1st world problem to have.

Luck doesn't come into it with IR35.

But whether you are inside or outside might not be under your control. Not everyone has a choice of jobs to select from.

gdrforest

You will avoid ALL taxes.(obviously on the amount paid into the pension)
Money paid by your Ltd company into your SIPP (up to the 40k limit) is taken before any taxes,Employers NI, Corporation Tax, employee NI, income tax.
If you are within IR35, you would not pay dividends as you would make no profit, everything would be paid into your pension or your salary or the 5% expense allowance.
If you are outside IR35 you would pay dividends and a minimum salary to minimise the taxes, it is simpler and I would call that lucky.