Employer contributions / Annual allowance

GolfPutt21

This should be a simple question but seems to be some confusion within my office;

I understand employer pension contributions are unlimited but have to be within annual allowance (£60k) is this right? One of the team seems to think employer can pay in however much they want.

Example being someone pays £60,000 into pension per annum via salary sacrifice and employer adds and extra £17,000 per annum on top - I assume this would be mean there would be a tax charge on contributions above £60,000?

PippaO

Hello,
Employer contributions aren’t limited to relevant earnings but together with personal contributions, are limited to the annual allowance plus available carry forward relief. Also must be deemed wholly & exclusively for the purpose of trade - not usually a problem for controlling directors.

benjaminfabi

@GolfPutt21 It isn't a simple question and confusion is understandable.

Employer pension contributions aren't limited - full stop.

But to obtain corporation tax relief they must pass the 'wholly and exclusively...' test @PippaO mentioned. So an employer could contribute, say, £100,000. But HMRC tax inspector might disallow some or all of it for CT relief. And/or the relief might need to be spread over two or more tax years.

If an employer contribution breaches the member's available annual allowance, it will create an excess tax charge on the member. If the member's annual allowance is exceeded by, say, £40,000, this amount gets added to their income in the relevant tax year and they have a personal tax charge for that amount at their highest marginal rate. In this example, the member could ask the scheme to pay the tax charge but there are different rules for that.