TaxationWeb by Peter Arrowsmith, FCA
A useful NIC tip for employees with personal pension plans, by Peter Arrowsmith, FCAThe current personal pension (and stakeholder personal pension) regimes allow contributions to be paid by either the employer or the employee. Normally, it is employee contributions that are paid.Where it is desired to make an employer contribution, it is important to establish that what is paid is indeed an employer contribution and not an employee’s contribution settled by the employer. The infrequency with which employers contributions are paid into such plans makes it easy to overlook the correct procedure and it is tempting – but costly – to shortcut things.
Employee’s contributions are paid net of tax and any attempt by the employer to pay such a contribution will therefore cause difficulties on that front. In addition, there will be a Class 1 (not Class 1A) National Insurance contributions liability on the payment because the employer has discharged the employee’s own debt. However unfair this might seem to an employer, arrears in respect of transactions can, and will, be collected on compliance visits.
A true employer contribution will be paid gross, with relief obtained through the Schedule D computation, and will attract neither a Class 1 nor a Class 1A National Insurance contribution liability.
Insurance company application forms contain separate sections for employee contributions and employer contributions. Get the paperwork right, and save hassle and money!
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