Company pension contributions – I get tax relief, right?

If you’re thinking about making a significant pension contribution from your company in March 2015, but are operating as ‘caught’ under IR35, you may be in for a nasty surprise. Contractors working through a company who are ‘caught’ or who aren’t sure if they are, should speak to their advisors before making any unusual or ‘one-off’ pension contributions in March.

Many contractors operating through a limited company, having taken advice, may accept that they are ‘caught’ by IR35. As a result, those workers often pay themselves a salary periodically based on the deemed payment calculation prescribed by the legislation. This neatly deals with the deemed employment taxes that would be due at the end of the year on a ‘pay-as-you-go’ basis, and can afford other real financial benefits in relation to the allowances currently available to employers.

The deemed payment calculation under IR35 allows for deductions for pension contributions made by the company for the benefit of the worker. But beware – if you have quite properly put the right amount of salary through the payroll during the year, and then make a large pension contribution at the end of it, you may find that you have insufficient capacity in the calculation to get full tax relief on the contribution made. Such ‘unrelieved’ contributions might be carried forward against the profits of future years, albeit relieved at (usually) lower corporation tax rates (although this is subject to argument). But as ever with IR35 ‘caught’ companies, there’s no guarantee of taxable profits in future years – so you could end up with some of the contributions you expected to reduce your overall tax bill attracting less relief, or even no relief at all!

What should you do? Some careful planning should help, but it goes against ‘normal’ contribution planning. At JSA we understand the needs of contractors, and we understand IR35 – speak to us if you’d like to discuss your options. Call us on 0800 25 26 40 or email [email protected] .

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