Relief on company contributions to personal pension ?

Question

Can a pensions guru possibly help with the following query ?

1) Currently contracting as an IR35 Fail, using Filetravel as my umbrella, so I am sole employee of Filetravel (nnnn) Limited, but not a shareholder or director. I get paid through PAYE.

2) Filetravel now offer access to a money purchase personal pension scheme to which the Ltd Co can contribute on my behalf from gross fee income

My question is, does the money paid in by my employer attract the same tax relief as if I'd paid it in myself ?

That is, if I paid in £78, the IR would automatically kick in another £22 and I could claim a further £18 through my tax return. If the company paid in £78, would I be in the same position ?

If so, looks like an unbeatable deal !

Thanks

Nick

John · Accepted Answer

It does not work quite like that but it is still better because of the NI saving. Let's start from the point that the company is either going to pay you £100 extra cash renumeration, or alternatively contribute £100 employer's contribution to your PPP. If the employer's contribution then the PPP actually gets £100 ... no more, no less. But if you personally pay in £78 then the PPP ends up with a total of £100.

The difference is this. If you personally pay the contribution you are doing so out of money that attracted NI contributions from your the employer and from the employee. In the umbrella company situation it is you who effectively ends of paying both of those.

Accordingly it is better for you personally to stop making contributions to your PPP but instead get the employer to make contributions, with your remuneration from the company being reduced. Nevertheless you win because of the NI saving.

Relief on company contributions to personal pension ?

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