Employer contribution to SIPP - National Insurance

Contribution to SIPP equal to salary and company's profit - what about National Insurance?

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I am a sole director of a Ltd company. My remuneration is not fixed but defined as a bonus depending on the company's profit. The condition for receiving the bonus is that all of it will be contributed to my SIPP. The company makes a pre-tax profit of £500k, hence I receive a bonus of £500k paid into my SIPP by the company.

Does the company have to pay National Insurance on this payment?

If not, it means it is a perfect solution for reducing the corporation tax to 0.

Also, I understand that the annual allowance for pension contributions will not be exceeded here as it is not more than 100% of my earnings. Therefore, no charge will be applied to this contribution. Is that correct?

Replies (6)

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JCACE
By jcace
24th Feb 2018 11:43

Do you receive a bonus, or not?
It sound as though the amount that would have been paid to you as a bonus is instead going to be paid to the SIPP.
What earnings will you have? Tax and NI will be due under PAYE on any bonus paid to you, but contributions paid by your employer directly to the SIPP will not be subject to PAYE - they're not earnings.

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By johngroganjga
24th Feb 2018 13:15

So your agreement with the company is that you are prohibited from receiving any remuneration directly?

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By Ltd_Dir
26th Feb 2018 17:02

Let me ask it another way. Is it possible to receive a contribution to my SIPP exceeding £40k but avoiding Annual Allowance charge?

If I claim tax relief via self-assessment only on £40k, will that be acceptable?
My goal is to put more than £40k in the pension scheme to take advantage of tax-free investment returns - I do not care much about tax relief.

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Replying to Ltd_Dir:
paddle steamer
By DJKL
26th Feb 2018 17:24

Who pays determines who gets tax relief, if the company pays it obtains relief providing the cost is W &E, you individually claim nothing on your tax
return as you have not paid anything.

Or am I misunderstanding?

See H L below re employer contributions

http://www.hl.co.uk/pensions/sipp/how-much-can-i-invest/employer-contrib...

"How much can my employer contribute?

Unlike personal contributions, employer contributions aren't limited to what the employee earns. A company could contribute more than the employee's earnings - up to the current annual allowance of £40,000, or up to £160,000 in some circumstances if using carry forward. If the employee has 'adjusted income' over £150,000, contributions might be limited to £10,000 - see our factsheet. If the employee has already accessed a pension, different rules can apply.

This is particularly beneficial for controlling directors who often take a small salary and large dividends to benefit from the tax advantages. As dividends don't count as 'relevant UK earnings', this would normally mean a director could only contribute up to the amount of their salary. However, with an employer contribution, directors can receive contributions greater than their salary, giving them more money in retirement.

NOTE: HM Revenue & Customs (HMRC) could question the contribution if the total salary and benefit package is excessive for the work undertaken. Contact your accountant if in doubt."

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Replying to DJKL:
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By Ltd_Dir
26th Feb 2018 21:28

OK, but what if someone, be it my employer or a third party, pays in more than £40k without my consent? Am I automatically liable for the annual allowance charge?

Is there no way to put more than £40k into pension, not claiming any tax relief, without incurring the annual allowance charge?

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Replying to Ltd_Dir:
paddle steamer
By DJKL
26th Feb 2018 22:22

Maybe via carry forward, speak to an IFA re the art of the possible.

I believe it will depend on what happened in three preceding years and whether you were a member of pension scheme during these years.

https://www.dentonspensions.co.uk/Technical-info/Contributions/Carry-for...

These days I tend to leave these things to an IFA but as I am not a great fan of pensions I never need to worry about limits.

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