Directors Pension Question
Discussion
This is probably one for Eric Mc and co...and I apologise in advance, but I have i) searched Google and ii) fallen out with my IFA, so I need some help to what should be a simple question.
Can a company pay into a Directors existing Stakeholder pension (existing from pre-company ownership)?
If yes, does this:
i) attract Employers NI?
ii) is it a benefit in kind?
iii) have the same contributions limit as a personal pension?
I can only find conflicting answers to the wrong questions on t'Interweb.
Can a company pay into a Directors existing Stakeholder pension (existing from pre-company ownership)?
If yes, does this:
i) attract Employers NI?
ii) is it a benefit in kind?
iii) have the same contributions limit as a personal pension?
I can only find conflicting answers to the wrong questions on t'Interweb.
The normal position is that companies can only pay into pension schemes set up specifically for the benefit of employees or directors OF THAT PARTICULAR COMPANY. Even then, the scheme has to be an approved scheme for that company. If it starts paying onto a scheme originally set up for the benefit of an individual who LATER sets up his own company, then the payments will:
i) be subject to a benefit in kind charge as far as the new company is concerned.
ii)may not be allowable as an expense in the profit and loss account of the new company.
If the new company wants to escape the above problems it needs to set up either a new stakeholder pension for the current emplyees amd/or directors of the company or a new approved directors' pension scheme.
i) be subject to a benefit in kind charge as far as the new company is concerned.
ii)may not be allowable as an expense in the profit and loss account of the new company.
If the new company wants to escape the above problems it needs to set up either a new stakeholder pension for the current emplyees amd/or directors of the company or a new approved directors' pension scheme.
Eric Mc said:
The normal position is that companies can only pay into pension schemes set up specifically for the benefit of employees or directors OF THAT PARTICULAR COMPANY. Even then, the scheme has to be an approved scheme for that company. If it starts paying onto a scheme originally set up for the benefit of an individual who LATER sets up his own company, then the payments will:
i) be subject to a benefit in kind charge as far as the new company is concerned.
ii)may not be allowable as an expense in the profit and loss account of the new company.
If the new company wants to escape the above problems it needs to set up either a new stakeholder pension for the current emplyees amd/or directors of the company or a new approved directors' pension scheme.
Pardon me, but I'm not sure that's correct or it may be correct but not the answer to the original question!
The legislation states that you (as employee or director) are not charged to tax or national insurance contributions by your employer(or personal company)
to either an approved company scheme or your own approved personal pension scheme. Provided the payments by the company are wholly for business purposes, (and as long as the pensioner concerned is in the employment of the company, I think that test is satisfied), they are allowed as a deduction in computing the company's profits. Unlike personal payments, the company's contributions are made gross. My understanding of "approved" is that it means approved for tax purposes (as opposed to unapproved schemes which do not attract any tax relief)and need not be specifically approved for use by the contributing company. There should be no need to set up new schemes every time you switch employers or start a new enterprise through your own company.
If I have misunderstood this, I should be most grateful to be corrected, Eric!
We are both correct. The key word is "approved". If you just start using your limited company's bank account to pay money into a previously existing personal pension scheme, you are more than likely going to fall into the Benefit in Kind trap.
What you need to do is notify the pension company what you intend to do and they should then take steps to modify or change the scheme to ensure that it achieves "Approved" status from HM Revenue and Customs.
It is strongly recommended that you get an official acknowledgement from either the pension scheme administrator or HMRC themselves that payments by the company into the scheme are allowed - in advance of making any such payments.
Don't forget, if the company ios paying into an approved scheme directly on your behalf, you are no longer entitled to personal tax relief on those contributions - after all, it is not you as an individual who has made the payments. As companies pay lower rates of tax than individuals, you need to do some number crunching to work out if you are getting any tax benefit by having your company make the payments.
Finally, once a company starts legitimately to pay into pension schemes, the reporting requirements in the notes to the statutory accounts become more extensive.
What you need to do is notify the pension company what you intend to do and they should then take steps to modify or change the scheme to ensure that it achieves "Approved" status from HM Revenue and Customs.
It is strongly recommended that you get an official acknowledgement from either the pension scheme administrator or HMRC themselves that payments by the company into the scheme are allowed - in advance of making any such payments.
Don't forget, if the company ios paying into an approved scheme directly on your behalf, you are no longer entitled to personal tax relief on those contributions - after all, it is not you as an individual who has made the payments. As companies pay lower rates of tax than individuals, you need to do some number crunching to work out if you are getting any tax benefit by having your company make the payments.
Finally, once a company starts legitimately to pay into pension schemes, the reporting requirements in the notes to the statutory accounts become more extensive.
Thanks for clearing that up, Eric. So returning to the original question, the answer is yes, BUT: to ensure no benefit in kind charge and a tax deduction in the company, ensure the scheme rules allow employer contributions and when your company does contribute, make sure the pension scheme knows where the contribution is coming from so they don't try to claim the personal tax relief. Obviously if they get this wrong, you could end up in a situation where the Revenue simply view the payments as settlement of a personal liability and that's when the benefit in kind rules kick in for tax and NI. As Eric said, no harm in checking with the Revenue, just don't hold your breath for a written reply.
Interestingly, having just returned from a seminar on the very same subject, I notice that the new rules from 6/4/06 have completely abandoned the term "approved" and replaced it with "registered". This would seem to give the Revenue the option of "disapproving" of a scheme at some later date convenient to them and no doubt inconvenient for the taxpayer! Only time will tell!
Interestingly, having just returned from a seminar on the very same subject, I notice that the new rules from 6/4/06 have completely abandoned the term "approved" and replaced it with "registered". This would seem to give the Revenue the option of "disapproving" of a scheme at some later date convenient to them and no doubt inconvenient for the taxpayer! Only time will tell!
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