Employment status question when opening a SIPP

owl456

I have a friend who is looking to open a new SIPP, and has asked me to sanity check everything that they are doing. One thing that we are both unsure of is how to answer the "employment status" question that all SIPP providers seem to ask whilst opening a new account.

Their status is as follows:

• Employed for the first six months of the current tax year
• Currently unemployed
• Does have a small amount of self-employment income "on the side", but this has been less than £1000 in the last few years so has not appeared on any recent tax return

It's not clear to us *why* any of the SIPP providers are asking for the employment status, or what that information is used for. Therefore we're not sure how to answer, given the three different possible answers for different points in time in the current tax year.

The money that they will be paying in (this year at least) comes from the employment earlier in the tax year, and will be above the £2880 limit for tax relief for those with no income. It is likely that, even if they don't find work in the short-term, they will want to add a further £2880 (the limit with no income) in April at the start of the next tax year, increasing that amount if they do find another job. Our thoughts are:

• If we answer the "employment status" question as "unemployed" (truthful for right now) then are we artifically limiting the amount of tax relief to the £2880 limit, even though they are entitled to more this year?
• Should we say self-employed (also technically truthful) to potentially make an automated system avoid the £2880 limit, even though there is absolutely no evidence of self-employment on recent tax returns?
• Or should we say "employed" (even though that's not actually true right now) because the money that will be paid in for this tax year is coming from earlier employment income?
• Do we need to update the employment status (if appropriate) with the SIPP provider before making any contributions for the 2021/22 tax year?

Finally, does the "employement status" question relate to the "source of funds" question that we'll be asked later when depositing funds into the SIPP? e.g. if we say "unemployed" for the employment status, but then "income from employment" for the source of funds, will that be flagged up somewhere, resulting in the SIPP provider and/or HMRC demanding explanations?

dunstonh

• If we answer the "employment status" question as "unemployed" (truthful for right now) then are we artifically limiting the amount of tax relief to the £2880 limit, even though they are entitled to more this year?

no

• Should we say self-employed (also technically truthful) to potentially make an automated system avoid the £2880 limit, even though there is absolutely no evidence of self-employment on recent tax returns?

Technically, self employed is the correct answer irrespective of income.

• Or should we say "employed" (even though that's not actually true right now) because the money that will be paid in for this tax year is coming from earlier employment income?

no

• Do we need to update the employment status (if appropriate) with the SIPP provider before making any contributions for the 2021/22 tax year?

Only if they ask it.

Finally, does the "employement status" question relate to the "source of funds" question that we'll be asked later when depositing funds into the SIPP?

no

Brynsam

owl456 said:

It's not clear to us *why* any of the SIPP providers are asking for the employment status, or what that information is used for. agged up somewhere, resulting in the SIPP provider and/or HMRC demanding explanations?

Different marketing material!