Good News For A Small Number of Pension Savers On Low Pay

QrizB

Kim1965 said:

Thankyou for explaing that. Im currently a sole trader, its only been the last 5 yrs (mortgage free, kids costing less etc) that ive been able to up pension payments to about 40 % of my nett profit. Missed a trick, bit miffed my accountant has not advised me. How does this work with class 4 national indurance? Currently pay 9%on profits over 9k i think. 

If you're a sole trader, rather than a limited company, I don't think you have quite the same opportunities for saving.

I'm sure there will be someone along who knows for certain, before too long.

zagfles

Dazed_and_C0nfused said:

Kim1965 said:

Malthusian said:

Kim1965 said:

Can someone explain what the plumber reference is about please. 

Anyone working via a limited company currently enjoys salary sacrifice on all the pension contributions they make via their limited company, on which they pay no NI. By contrast, if they were a sole trader, they would have to make personal contributions out of post-tax income, for which they would get income tax relief but not NI relief. Employees without the option of salary sacrifice similarly pay NI on employee pension contributions.

A plumber is a typical example of a relatively modest earner who would often work via a limited company, and would have to pay extra tax if employer pension contributions became subject to NI. (I.e. not the kind of "fat cat" who Governments like to pretend they are targeting when they raise tax.)

zagfles said:

It is possible to specifically target sal sac arrangements, they already did this in 2017, it's just they exempted pensions.

https://www.gov.uk/government/publications/optional-remuneration-arrangements/optional-remuneration-arrangements

Never said it wasn't legally possible to specifically target salary sacrifice. I just don't think it's politically possible to target a new tax at private-sector employees only, which is effectively what you are doing if you levy NI on employer pension contributions to DC schemes but not on DB ones.

Thankyou for explaing that. Im currently a sole trader, its only been the last 5 yrs (mortgage free, kids costing less etc) that ive been able to up pension payments to about 40 % of my nett profit. Missed a trick, bit miffed my accountant has not advised me. How does this work with class 4 national indurance? Currently pay 9%on profits over 9k i think. 

For most people relief at source pension contributions (personal pensions or SIPP and some employer schemes) don't reduce the tax or National Insurance they pay.

The benefit is from the basic rate tax relief added to your contribution.  So you pay say £3,000 and the pension company adds £750 courtesy of HMRC.  But it doesn't save you income tax or NI (Class 1, 2, 3 or 4).

Where they do tend to save you some tax is if you are a higher rate payer or liable to the High Income Child Benefit Charge.

Or if you claim tax credits or UC (to be pedantic they won't save you tax but you'd normally get more tax credits/UC as pension conts are deductible from the income assessed). 

Dazed_and_C0nfused

zagfles said:

Dazed_and_C0nfused said:

Kim1965 said:

Malthusian said:

Kim1965 said:

Can someone explain what the plumber reference is about please. 

Anyone working via a limited company currently enjoys salary sacrifice on all the pension contributions they make via their limited company, on which they pay no NI. By contrast, if they were a sole trader, they would have to make personal contributions out of post-tax income, for which they would get income tax relief but not NI relief. Employees without the option of salary sacrifice similarly pay NI on employee pension contributions.

A plumber is a typical example of a relatively modest earner who would often work via a limited company, and would have to pay extra tax if employer pension contributions became subject to NI. (I.e. not the kind of "fat cat" who Governments like to pretend they are targeting when they raise tax.)

zagfles said:

It is possible to specifically target sal sac arrangements, they already did this in 2017, it's just they exempted pensions.

https://www.gov.uk/government/publications/optional-remuneration-arrangements/optional-remuneration-arrangements

Never said it wasn't legally possible to specifically target salary sacrifice. I just don't think it's politically possible to target a new tax at private-sector employees only, which is effectively what you are doing if you levy NI on employer pension contributions to DC schemes but not on DB ones.

Thankyou for explaing that. Im currently a sole trader, its only been the last 5 yrs (mortgage free, kids costing less etc) that ive been able to up pension payments to about 40 % of my nett profit. Missed a trick, bit miffed my accountant has not advised me. How does this work with class 4 national indurance? Currently pay 9%on profits over 9k i think. 

For most people relief at source pension contributions (personal pensions or SIPP and some employer schemes) don't reduce the tax or National Insurance they pay.

The benefit is from the basic rate tax relief added to your contribution.  So you pay say £3,000 and the pension company adds £750 courtesy of HMRC.  But it doesn't save you income tax or NI (Class 1, 2, 3 or 4).

Where they do tend to save you some tax is if you are a higher rate payer or liable to the High Income Child Benefit Charge.

Or if you claim tax credits or UC (to be pedantic they won't save you tax but you'd normally get more tax credits/UC as pension conts are deductible from the income assessed). 

Good point 🙂