Maximum personal contributions to SIPP if non-taxpayer/ employer contributions are made?

[silvermum]

I'm director of a family business (ltd company). I only take a small salary of £8040 on which no PAYE or NICs are payable. Separately, I also have property rental income of c. £5000 a year
Last year I paid all my salary of £8040 into my SIPP, but only received HMRC tax relief of £720, presumably because I fall into the non-taxpayer bracket?

I don't need to take more income out of the business, but we are proposing that the company pay direct into my SIPP instead - an employer contribution of £2000/month. This would be a direct debit from the company so I don't think it would be on my payslip?

My question is this: Could I still make a non-taxpayer contribution of £2,880 into my SIPP and received the £720 HMRC tax relief?

[LozaACCS]

I do not understand why you say you had tax relief of £720, it appears that the payment of £8,040 was made under relief at source so the net payment of £8,040 is worth £10,050 to the pension fund.
For the current year your input in the pension input period is likely to be £2,000 * 12 + (2,880 * 100/80) = £27,600, the lower annual allowance for 15/16 is £40,000 so yes you can make the contribution

[robbob]

I do not understand why you say you had tax relief of £720, it appears that the payment of £8,040 was made under relief at source so the net payment of £8,040 is worth £10,050 to the pension fund.

Sounds a confusing situation.

(1) Loza - would added tax into the pot not be restricted to 20% of Gross Earned income - £8,040 - being 1608 tax (20% of 8040) and gross amount into the SIPP of 9648 (presuming everything was advised correctly to SIPP provider)- i am presuming the rental income is classed as passive investment income.


(2) OP - are you sure you only had £720 added to your SIPP? - if this is the case did you make it clear that your earned income for the period was £8,040 - if they weren't aware of this income they may have restricted the tax relief to the basic amount available to everyone - contact your SIPP provider if in doubt.

My question is this: Could I still make a non-taxpayer contribution of £2,880 into my SIPP and received the £720 HMRC tax relief?

Yes as a far as i am aware


Tax planning note with regard too new rules from 6/4/2016 - if you are taking more than 5k dividends per year from your company - then it will likely be better to make all payments via the company into your SIPP as all other things being equal this will leave you with a lower dividend figure and save on the new tax charge - the reason for this is that if you pay into the pension personally you need to draw that cash out of the business - if everything else is fixed a reduction in cash drawn will always result in a lower divis figure.

[LozaACCS]

Robbob
It would be if the contribution were made by the individual or another person on his behalf.
Eligibility for relief is given at S188(1) FA2004.
S188(2) defines a relievable pension contribution.
S188(3)(b) excludes employer contributions from the definition at S188(2).
So employer contributions are not eligible for tax relief but qualify for tax relief for the employer under S196, (that at least is my understanding).
The maximum add on therefore would be that relating to the individual contribution.

[silvermum]

Many thanks for these replies. Yes, it IS confusing, isn’t it?

I’m presuming only £720 was added to my SIPP as I hadn’t paid any tax on the £8040 through PAYE in the first place, therefore there wasn’t any to ‘reclaim’ as it were, and I was therefore treated as not employed/ non-taxpayer.
I definitely declared it as earned income with my SIPP provider.
I haven’t paid PAYE tax because the income was below the £10k personal allowance level.

The rental income is new this 2015-16 tax year, so any tax on that will be declared and paid via my SA tax return (which has to be done anyway, as I am a director).

Lozo – the £2000/month would be a direct Employer Contribution, so would not be eligible for any tax relief, so the input would simply be £24,000.

The bit I wasn’t sure about was what level of personal contribution I should add to my SIPP. If the maximum relief available to me is £720 (based on a £2880 ‘non-taxpayer level contribution) then it may not make sense for me to add any extra personal contributions above this level?

[silvermum]

I guess a different way of expressing my question would be:

If earned income hasn't been taxed at source through PAYE, does that mean that it doesn't count as "relevant UK earnings that are chargeable to tax" for the purpose of maximum pension contributions eligible for tax relief?

[silvermum]

And sorry, I see I made a mistake in my first post in the figures (which has probably confused things!)
My total salary was £8040 (on which no NICS/ PAYE tax paid)

I paid £6432 into the SIPP, expecting it to be 'topped up' with the 20% (£1608) to £8040. But only £720 was actually paid as relief.

[jason13]

I paid £6432 into the SIPP, expecting it to be 'topped up' with the 20% (£1608) to £8040. But only £720 was actually paid as relief.

You should have received £1608, not £720. I'd speak to your SIPP provider. Maybe you ticked the wrong box when you made your contribution.