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Employer v’s Employee Pension Payments (Net Relevant Earnings)

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This is exactly how I pictured the partners lounge

Currently the maximum pension payments allowed per year are £50,000 this for Employee and Employer payments, however, if your net relevant earnings (NRE) are below £50,000 your personal payments will be capped at the higher of your employment income or £3,600. (Carry Forward may be available)

NRE excludes Dividends and if your personal pension payments exceed the NRE then you will need to declare the over payment on your self assessment return and pay tax on it.

This can be a big issue for company directors-shareholders who often take a large part of their income in dividends.

The solution to this is for the company to make employer contributions. Employer contributions count towards the £50,000 limit but are ignored for the NRE cap.

The attached link is useful article on this subject

http://www.scottishlife.co.uk/scotlife/web/site/Adviser/TechnicalCentralArea/Informationguidance/Contributions/Employercontributions.asp

steve@bicknells.net


2 Comments

  1. alterledger says:

    Employer pension contributions are a tax efficient way to reward directors and other staff; however as with salary sacrifice schemes you need to be careful that you don’t fall foul of the National Minimum Wage regulations.

  2. GORDON MCMASTER says:

    Steve,

    Thanks for that. The blog has answered a question that I was going to pose to HMRC.

    Kind regards

    Gordon

    ________________________________

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