Payroll - Employer contribution into Employee's personal pension

Question asked by Helen Stephens 9 years ago

Hi,

As I've no experience with Pension contributions I'm looking for some advice/guidance on the following please. Currently we have not set up our company pension scheme, but have a new employee that would like us to contribute to their personal pension, which we have agreed to. Previously we had increased an employee's salary with the agreed amount which they would pay into their pension, and then once our scheme is in place we would pay this into the company pension scheme. However, in the interim are we able to process the company pension contribution through payroll and pay directly into their personal pension account, as a pre-tax deduction and making a saving on our corporation tax and national insurance contribution? If so, is there a particular way in which this needs to be recorded on payroll?. Also, please can you advise if there is any information we would require to show in the case of a visit from the tax man!?

Many thanks in advance of your assistance.

Helen

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3 Replies

Hi Helen

This forum is generally about how to make things work when using Clearbooks. So I'm not sure that this is the right place to get your answer.

Having said that, I would double check how you are treating the pension payments. Are you making employer contributions to your staff's personal pension scheme? Does the pension provider treat it as an employer contribution or are they seeing it as a personal contribution from your employee?

If the latter, then what you are doing may be incorrect. Generally personal pension contributions are assumed to have been made from a person's post-tax salary. And in doing so the pension scheme tops up the contribution as if it was paid to them net of 20% tax. If you pay it gross, they are getting the full value of the contribution, as well as a top up from the tax man so this is double dipping!

I would either do what you were doing previously, in that you increase the salary so that the net of tax increase can be paid on by your employee themselves, or discuss with their pension provider the ability to make employer contributions directly to it (many allow you to) so that the tax is treated correctly.

You can then show the pension contributions as a negative gross salary, i.e. reducing the gross salary as a salary sacrifice on the payslip, or just have something in writing from the employee authorising you to reduce his salary and you can make the payments directly to the pension provider. I would do the salary sacrifice route as it's a better audit trail.

Best answer
9 years ago

Great many thanks for your feedback Michael,

With kind regards Helen

9 years ago

Hi, Is anybody able to assist me with my above query please? Many thanks Helen

9 years ago

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