Employers National Insurance and Personal Pensions

Is it possible to check that the amount of Employers' National Insurance that an employer claims to have paid actual has been paid?

My employer (actually my payroll company - but legally my employer) pays part of the money that I earn as a contractor to me as a personal pension. This is paid without tax or employees' national insurance being deducted. However they are making a deduction for employers' national insurance. Can anyone tell me whether this is the correct way to make the calculation?

The amount of salary that is declared to the inland revenue on the P60 does not include pension - it occurs to me that this might leave room for fraud.

IanH

Reply to
IanH
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This is because Pension Contribtions are deducted first from gross salary / earnings, along with other items such as your Personal Allowance, before you arrive at an amount that is liable to Income Tax and NI.

Seems correct to me.

Neil.

Reply to
G.J. Heirophant

Wow. Do they actually trust you to put the money into a pension fund, and not just to finance your Ferrari? Are you sure they don't send the dosh directly to whichever pension company you have chosen? If the money passes through your hands, there would seem to be a lot of room for tax fraud, i.e. you could just go and spend the money instead of sticking in a pension.

That doesn't sound right at all. If for each £100 you earn £10 are diverted to the pension fund, and if the employer contributes a further £15 to the fund into the bargain, then your earnings for all

3 tax purposes (income tax, employee's NI, employer's NI) are £90.

There should be no "deduction" for employer's NI, but it is customary to show the amount of employer's NI on the P60. This has been

*contributed* by the employer, not deducted.

No, this is correct, because for tax purposes your earnings do not include pension contributions.

Reply to
Ronald Raygun

I kind of misread the original post - can you confirm that they are actually passing the pension contributions directly over to you, or over to a pension / insurance company.

If they are passing it directly to you, it sounds a bit fishy....

Reply to
G.J. Heirophant

Why do you care what Employers' NIC they pay?

You are receiving a personal pension? How is that part of what you earn?

Pensions are not subject to NI.

A pension should be paid separately.

Are you getting confused between being paid a pension and having pension contributions deducted?

Reply to
Peter Saxton

The money is paid directly into the pension fund and does not pass through my hands.

In effect, for me, it is 'deducted' because my 'employer' is an umbrella company. I earn money from the end client which is passed to the umbrella company. From the money that is paid by the client the 'employer' takes their fees, deducts pension which is paid directly to the pension company and NI contributions and tax and then the balance is paid to me as salary. What I am concerned about is the order in which the calculation is being done.

Company earnings. £x Employers fees. £y

--------------------------- Balance 1 £x - £y Employers NI £n Employers NI calculated on Balance 1. Pension £p Pension paid directly into fund.

-------------------------------- Balance 2 £x -£y - £n - £p Tax £t Tax calculated on Balance 2. Employees NI £e Employees NI calculated on Balance 2.

--------------------------------- Salary £x - £y - £n - £p - £t - £e

-----------------------------------------------

Employers NI is being calculated on company earnings - fees. Pension is then deducted and on that balance tax and employees NI is calculated. This results in a larger figure for employers NI than if pension were deducted first.

Reply to
IanH

So "My employer (actually my payroll company - but legally my employer) pays part of the money that I earn as a contractor to me as a personal pension." is not accurate.

An umbrella company has a contract with you and can make deductions in accordance with that contract

Employer's NIC is calculated on your salary not "company earnings - fees".

Reply to
Peter Saxton

So it isn't a pension being paid to you. It's pension contributions that are being deducted from you.

Reply to
Peter Saxton

Yes, I phrased that original statement rather unclearly.

Yes, but according to the payslip that I receive they are actually calculating the employer's NI on "company earnings - fees" not on salary. The question that occurs to me is whether the whole amount of employer's NI that is stated on the payslip is being handed over to the Inland Revenue. What if only the smaller sum which would be calculated from salary was being handed over? I would like to know how I can check this.

Reply to
IanH

You're right to be concerned. It looks wrong to me too.

Tax and both NI deductions should be calculated on the same amount, namely your nominal pay after pension contributions have already been deducted, in other words balance 2.

Is your conclusion that £n is calculated on balance 1 based on more than just where it appears in the sequence, i.e. have you actually done the sums? -- Mind you, it *will* be calculated on balance 1, but in such a way that the correct relation applies with respect to balance 2. It's likely that £p too will be a contractually defined fraction of balance 2.

If for simplicity we ignore the below-NI-threshold stuff and work just at the margin, then if the contract says you are contributing 10% of pay to the pension fund, and employer's NI is 12.8% of pay, then obviously B1 must be 122.8% of B2, and so they would calculate £n as being 128/1228 of B1, and £p as 100/1228 of B1, so that magically £n and £p will end up being 12.8% and 10%, respectively, of B2.

Reply to
Ronald Raygun

Yes I am sure they are calculating it on "company earnings - fees". I am able to to specify the percentage of earnings to be paid each month into the pension and recently decided to contribute a large percentage. This is why I have now noticed what is going on. My gross salary before tax and employees NI (ie B2 above ) was £1,142. The employers NI was £619 - clearly this was calculated on company earnings.

Reply to
IanH

This appears to be wrong. When I said it shouldn't matter to you whether they pay it to HMRC I was right. The important thing to you is that they deduct the correct amount from you!

These umbrella companies make their money by employing monkeys to do the wages and accounts. You'd be better to switch to an accountant.

Reply to
Peter Saxton

Of course the bottom line for me is whether they deduct the correct amount. However this is a large operation with slick software to do all the calculations. A large number of contractors must be in the same position to me so the total sum of money involved must be huge. I have looked at the payroll stuff that HMRC publishes as guidance to employers and am now convinced that the payroll calculation is being done wrongly. Employers have to state details of salary and NI contributions of a form P11 that they submit to HMRC. I find it hard to believe that HMRC would not pick up a gross error in the calculation. So where is the money going?

Reply to
IanH

P14s are submitted not P11s.

The P14s and P35s that are submitted may have sensible calculations on the face of it.

Umbrella companies can be chancers and when HMRC investigate they will get found out.

Have you discussed your concerns with the company?

If you talk to your umbrella company or HMRC I would recommend you don't say pension when you mean pension contributions and don't say pay to you when you mean pay to a pension fund.

Reply to
Peter Saxton

They have now agreed to reimburse me and I have had back a sum for this year. I am going to carefully look at the NI figure for periods when I was not contributing to the pension to see if they are correct. Would HMRC be the people to involve in a wider investigation since it would be the contractors not HMRC who are out of pocket?

Reply to
IanH

I wouldn't rely on HMRC for anything.

Your problem will be contacting the other contractors.

Reply to
Peter Saxton

Thanks for your help. I am working in a large workplace with many contractors and am shortly moving to another so word is going to get around.

Reply to
IanH

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