Can £10,000 p.a. now be recycled through a SIPP to avoid both income tax and employerNI?

BobWelham

Suppose that John is over 75 years old but still employed on PAYE at a salary which, together with his State pension, gives him an income well below the top of the 20% income tax range.
He has a SIPP from which he makes regular withdrawals which total £10,000 p.a., £2,500 of which is tax free.
On the remaining £7,500 John pays 20% income tax. So he pays £1,500 which is 15% of his total annual withdrawal.

For 2023-24 and beyond is it legal for John's employer to make employer contributions of £10,000 p.a. into John's SIPP?
If so, then in effect John is receiving an extra £10,000 p.a. income from his employer at only 15% income tax, thus avoiding income tax of £500.
Additionally the employer avoids paying NI contributions of £1,200 (i.e. 12% of £10,000).

xylophone

According to

https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/pension-contributions-qa#:~:text=Q: Can an employer receive,an employee of any age.

Q: Can an employer receive tax relief on a pension contribution paid for an employee who has attained age 75?

A: The usual corporation tax relief rules apply. There is no age restriction for an employer pension contribution, which can be paid on behalf of an employee of any age. Providing the wholly & exclusively test is satisfied, then the employer will receive corporation tax relief in the usual manner.

NB there is no tax relief on personal contributions or third party contributions paid by or in respect of an individual who has reached age 75.

Linton

Yes but...

Is the £10K being cut from John's salary?  But the employer has to pay John at least the Minimum Wage.

What is being proposed would seem to be Pension Recycling since this applies to employer's contributions as much as to employee's.  

BobWelham

Thanks, and so far so good, the employer has effectively paid John £10,000 with no employer NI liability.

Now, are any pension re-cycling rules being broken by John?
Or, has he effectively avoided paying £500 income tax by means of £10,000 going both into and out of his SIPP?

Linton

BobWelham said:

Thanks, and so far so good, the employer has effectively paid John £10,000 with no employer NI liability.

Now, are any pension re-cycling rules being broken by John?
Or, has he effectively avoided paying £500 income tax by means of £10,000 going both into and out of his SIPP?

Is the employer going to pay John Minimum Wage in addition to the £10K?

Looking at the Pension Recycling, John should be OK as the rules only apply to TFLS's above £7500 totalled over 2 years.  In John's case it's £5K.

michaels

Still don't see how he is being paid national minimum wage? (Which has to be on top of any employer pension contributions)

Pat38493

michaels said:

Still don't see how he is being paid national minimum wage? (Which has to be on top of any employer pension contributions)

This is the catch I think - they cannot do this as it would put the employee below minimum wage.

cloud_dog

Pat38493 said:

michaels said:

Still don't see how he is being paid national minimum wage? (Which has to be on top of any employer pension contributions)

This is the catch I think - they cannot do this as it would put the employee below minimum wage.

Does it have to undertaken by SS though?

If the earnings were low e.g. £10k, and the person aged 75, they wouldn't pay NIC as they are above SP age, and if the contributions (£8k) are made under a RAS scheme then BRT relief would be applied automatically.

(I feel I may have missed something?)

zagfles

michaels said:

Still don't see how he is being paid national minimum wage? (Which has to be on top of any employer pension contributions)

Why? Even if he's full time 40 hours, min wage is a bit under £22k. So could have salary (before sal sac) of £32k, sal sac £10k, total taxable income = £22k salary plus £10k state pension plus £7.5k SIPP = £39.5k, well inside the basic rate band.

zagfles

cloud_dog said:

Pat38493 said:

michaels said:

Still don't see how he is being paid national minimum wage? (Which has to be on top of any employer pension contributions)

This is the catch I think - they cannot do this as it would put the employee below minimum wage.

Does it have to undertaken by SS though?

If the earnings were low e.g. £10k, and the person aged 75, they wouldn't pay NIC as they are above SP age, and if the contributions (£8k) are made under a RAS scheme then BRT relief would be applied automatically.

(I feel I may have missed something?)

No it wouldn't, that's the point, you can't get tax relief after age 75

cloud_dog

zagfles said:

cloud_dog said:

Pat38493 said:

michaels said:

Still don't see how he is being paid national minimum wage? (Which has to be on top of any employer pension contributions)

This is the catch I think - they cannot do this as it would put the employee below minimum wage.

Does it have to undertaken by SS though?

If the earnings were low e.g. £10k, and the person aged 75, they wouldn't pay NIC as they are above SP age, and if the contributions (£8k) are made under a RAS scheme then BRT relief would be applied automatically.

(I feel I may have missed something?)

No it wouldn't, that's the point, you can't get tax relief after age 75

Duh!!!!

I knew it