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Bonus taken as pension contribution - timing

Timing of relief for a pension cont where director / employee takes bonus as addition to GPPP

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I suspect I am overthinking this, but I am considering timing of relief in the case where an employee is given a bonus and asks for it to be paid as a pension contribution direct to their fund on a group PPP where this occurs around the company year end.

For example:

  • Year end is 31 May.
  • In mid May employee is told they have been awarded a bonus to be paid in June.
  • Employee asks for bonus to be paid as an addition to their GPPP and as that is made direct (effectively salary sacrifice) the contribution is made as a gross employer contribution and reflected in the June salary slip.
  • Company shows pension contributions as outstanding at year end in the accounts to 31 May

Does the date that the employee asks for the bonus to be paid as a pension contribution affect whether or not relief adjustment for pension contributions paid in the AP is required in the company computation? 

If the employee was considering how to take the bonus at year end and did not make the pension request until mid June then is there an argument that at year end there was an accrued bonus that was paid within 9 months and no tax adjustment is required in the comp, even though in preparing the accounts the company showed this as unpaid pension contributions because of the employees request post year end?

 

Replies (8)

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By ireallyshouldknowthisbut
20th May 2022 11:51

That is a great question

From an accounting standards point of view, I don't think its a post balance sheet event as the pension decision had not been made at the year end........so its salary.

I bet you get 5 different answers.

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By williams lester accountants
20th May 2022 12:15

I think i would be disallowing in the tax comp. as it is unpaid pension.

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Replying to williams lester accountants:
By Paul D Utherone
20th May 2022 12:24

williams lester accountants wrote:

I think i would be disallowing in the tax comp. as it is unpaid pension.


That was my first instinct. It is just the issue of proximity to the year end and whether status of the payment is dependent on when the employee decides they would like to bonus paid as a contribution rather than cash taxed under PAYE, and the sum involved is sufficient to consider the possibilities
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By David Ex
20th May 2022 12:18

Paul D Utherone wrote:

… asks for bonus to be paid as an addition to their GPPP and as that is made direct (effectively salary sacrifice) ….

Is it salary sacrifice for NI purposes?

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Replying to David Ex:
By Paul D Utherone
20th May 2022 12:19

David Ex wrote:

Paul D Utherone wrote:

… asks for bonus to be paid as an addition to their GPPP and as that is made direct (effectively salary sacrifice) ….

Is it salary sacrifice for NI purposes?

That I would need to check
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Replying to Paul D Utherone:
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By David Ex
20th May 2022 17:55

Paul D Utherone wrote:

David Ex wrote:

Paul D Utherone wrote:

… asks for bonus to be paid as an addition to their GPPP and as that is made direct (effectively salary sacrifice) ….

Is it salary sacrifice for NI purposes?

That I would need to check

I'm trying to work out of you can use salary sacrifice in the circumstances.

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim42765

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim42260

I suspect not as the individual appears to have become entitled to the bonus payment before then asking for it to be paid to his pension.

Might be wrong.

If NI is in point, presumably that would fix the bonus as earnings and an accrual of earnings at the year-end.

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By accountaholic
20th May 2022 13:43

I could wrestle with this for hours!

My conclusion is allowable as salary on this basis:
At the period end there is a contractual obligation to pay a bonus, not to pay a pension contribution.
The employee, subsequent to the period end, asks for their right to the bonus payment to be settled by way of a pension contribution instead.
There was never any obligation on the employer to pay a pension contribution. They are simply being a nice employer and co-operating with a request which is cost neutral to the employer.

The employer, if worried about it, could always tell the employee they couldn't co-operate as it would cost them the tax relief for twelve months.

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By fawltybasil2575
21st May 2022 13:53

@ Paul D Utherone (OP).

I note the words per the scenario in your initial question:-

“Company shows pension contributions as outstanding at year end in the accounts to 31 May”.

This would appear to at least imply that the REQUEST (to the employer) to place money into the pension scheme, ie instead of their paying him a salary bonus, was made ON OR BEFORE 31 May (since of course it would be incorrect to show the pension contribution as an outstanding amount if such request had not been made by 31 May).

Later in your question you nonetheless say:-

“If the employee was considering how to take the bonus at year end”,

which invites one to however consider the alternative circumstance where the “REQUEST” was made to the employer AFTER 31 May.

It would assist my providing my own humble opinion if you would:-

(i) Indicate specifically whether or not the request was made on or before 31 May,

(ii) Indicate whether the amount at issue (ie the bonus/pension contribution) is “material” to the Financial Statements; and whether FRS 102 will apply.

Basil.

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