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Building 3 Chiswick Park, T: 020 3818 9530

OASIS 566 Chiswick High Road,


London, W4 5YA
F: 0333 014 2238
M: 078 0669 0596
shankar@oasisaccountants.co.uk
www.oasisaccountants.co.uk
ACCOUNTANTS

Expenses Guidelines for IT Contractors

Pension Contributions
Whilst there are a wealth of pension products available for those who want to invest their money in
their futures, advice on which of these should be sought from someone who specialises in this area.
However, if you want advice on the tax situation surrounding pension contributions and the best way
to structure them to ensure that you are getting the tax relief you are entitled to, then an accountant
who specialises in self-employment, contracting and running your own business is ideal.
If you want to make contributions to a pension fund, then there are two ways doing so: you can
make them directly as personal payments or through your company. There are tax advantages to
both, so which one works best for you will depend on your circumstances.

Personal Pension Contributions


If you want to transfer some of your personal fund into a pension scheme, then you will be entitled
to personal tax relief. Pension providers can reclaim the basic rate of tax on the contributions that
you make and this will be added to your fund, meaning that an 80 payment will be worth 100. If
you are a higher or additional rate tax payer then tax relief will also be available up to the top rate
of tax that you pay.
If you want to benefit from tax relief on personal pension contributions, then the maximum you can
invest is 100 per cent of your earned income from either employment or self-employment, so long
as this is below the annual allowance which is 40,000 in 2015/16. If you do not earn enough to pay
income tax, then you can still receive tax relief on pension contributions up to a maximum of 3,600,
meaning that you contribute 2,880 and the government tops it up to 3,600. If you pay in more
than this amount then you will not be entitled to tax relief on the excess.
Example: If your gross annual salary is 10,000, then you can claim tax relief on up to 8,000 of
pension contributions, as the tax reclaimed on this sum by your pension provider will total 10,000.

Company Pension Contributions


Pension contributions made by a company are deductible for corporation tax purposes, so long as
you can demonstrate that they are wholly and exclusively for business purposes. Whist the guidance
on what this means in practice isnt definitive, in general if a remuneration package is reasonable
and doesnt result in an overall tax loss for the company, then the contributions can be deducted.
Annual Allowances can be carried forward from the previous three years if they have not been used,
meaning that up to 190,000 can be contributed in 2015/16 so long as the following criteria are met;
you must have been in a UK registered pension for the years in which your allowance was unused,
and you must have earned at least as much as you want to contribute in the tax year in which the
payment is to be made.

Deciding Factors
If you arent sure whether you should be contributing to a pension on a personal basis or through
your company, then it could help to consider some of the following:

Shankar Devarashetty FCCA


Oasis Accountants is a limited company registered in England and Wales No.8359050. Registered as auditors in the United Kingdom by the
Association of Chartered Certified Accountants. VAT no: 163 3407 26
Tax relief on personal contributions is limited to 100 per cent of an individual salary or other
earned income, meaning that any gross contributions, which exceed this amount will not
normally be tax efficient.
If your employment status means that IR35 applies to you, then pension contributions made
on behalf of a company will always be more tax efficient as they are considered a qualifying
expense under the applicable salary rules. This means that both employees and employers
National Insurance Contributions are saved which would not be the case if personal
contributions are made.
Company contributions are safe from IR35. This means that if you were operating outside
IR35, but were subject to an HMRC investigation which resulted in a decision that you should
in fact have been operating inside IR35, then any pension contributions would be deducted
from the salary due.
Both annual and lifetime limits are imposed on the pension contributions that can be made.
The annual limit is 40,000 in 2015/16 and the lifetime limit is 1,250,000 so if you want to
contribute more than that then the excess will be liable for tax.

Pension Input Period


Although some pension providers will use the tax year as the pension input year, usually an
individuals annual allowance is based on the tax year in which their pension contributions begin,
meaning that the input period usually ends on the anniversary of the date of the first contribution.

To Conclude
For most people, personal contributions up the level of their gross salary and then company
contributions for any excess is considered the most tax efficient way of funding a pension. However,
many people prefer the administrative simplicity of solely making company contributions, especially
given the relatively low value of the contributions that can be made when a lower salary is paid.

For more information about what expenses you can claim as a contractor, please get in
touch with Your Dedicated Account Manager who will be happy to answer any of your
questions on his direct extension or on 020 3818 9530 or
email support@oasisaccountants.co.uk.

Shankar Devarashetty FCCA


Oasis Accountants is a limited company registered in England and Wales No.8359050. Registered as auditors in the United
Kingdom by the Association of Chartered Certified Accountants. VAT no: 163 3407 26