Auto Enrolment – No Employees??

We often get the question from our contractor clients or other small Limited Company clients about whether they have to comply with auto enrolment at all.

The answer is not necessarily but they still need to consider their situation and let the Pension Regulator know what they are doing.

The first thing to do is to consider whether they genuinely have no staff. The details on this are here: http://www.thepensionsregulator.gov.uk/en/employers/what-if-i-dont-have-any-staff.aspx but the basic scenario is that if you only have Directors who have no employment contracts then you do not need to comply.

Once you have established your situation you need to let the Pension Regulator know that you have no staff. The Pension Regulator now has a specific web form to fill in here: https://automation.thepensionsregulator.gov.uk/notanemployer . Once you have done that you are off the hook!

For any other queries about Auto Enrolment please give us a call.

Pensions – Net Pay Arrangement vs Relief At Source

With the advent of Auto Entrolment pensions all Employers are going to become more familiar with the ins and outs of pension tax relief!

Unfortunately just to complicate a complicated system even more there are two fundamental ways that the Employee contributions can be calculated.

If a worker has agreed to the minimum contribution which at the moment is 1% of their “qualifying earnings” (minimum contributions shown here: http://www.thepensionsregulator.gov.uk/employers/contributions-funding-tax.aspx#s9379) (qualifying earnings shown here:https://www.nestpensions.org.uk/schemeweb/NestWeb/public/helpcentre/contents/what-are-qualifying-earnings.html) then then there are two ways that the employer can deal with this.

With a method called “Relief at Source” the employer will deduct 0.8% of the qualifying earnings from their after tax income and send it to the pension provider. They will then gross it up giving them basic rate tax relief at 20%. Higher rate taxpayers will get higher rate tax relief through their tax returns. The NEST pension which many of our clients have chosen uses this method: https://www.nestpensions.org.uk/schemeweb/NestWeb/public/helpcentre/contents/how-should-i-calculate-tax-relief-with-my-earnings-basis.html

However there is another method called the net pay arrangement where the employer will deduct the full 1% from the employers gross pay and the pension Company will not gross it up.When the submission is made to the pension company the payroll operator must be clear about which method is being used otherwise the tax relief will be wrong.

As you can see this is a potential minefield…………….!! That’s why when we were researching how to support our clients with Auto Enrolment we decided that by far the best way forward was to integrate it with our payroll systems. In this way everything is calculated and submitted in one place and errors can be minimised or eliminated.

Please give us a call for a no obligation discussion about your auto enrolment requirements.

 

 

Auto Enrolment – Employers Need To Take Care!

Summer has finally arrived in the Central Belt. And along with press stories of sunburn and ice creams are a number of stories about the Pensions Regulator clamping down on Companies who have not complied with their workplace pension requirements. An example of this is a story in the Herald today Herald Story on Auto Enrolment.

The Pensions Regulator reports a surge in whistleblowing from employees of Companies who have failed to comply with the auto enrolment requirements. The number of whistleblowers contacting the Pensions Regulator has reportedly risen to 2,545 in the last year. With fines of up to £10,000 a day available and the recent news that Swindon Town Football Club were fined £20,000 in April for non compliance employers need to ensure they are in a position to comply.

When we analyse our clients we still have over 80% not at their staging date yet so the rest of 2016 and 2017 is going to be a busy time helping our clients comply. Through helping our larger clients through the process already we have a well oiled method of taking the pain away from this process. We have clients in NEST, The People’s Pension and other pension schemes that they already had. Our payroll integrated process removes duplicate data entry and creates a seamless process.

Our message to our clients is that burying their heads in the sand is not an option. The Employer contributions can be looked at in the context of other pay rises and if planned for far enough ahead should be manageable for all. Give us a call if you would like to discuss how easy it is to get going.

 

 

 

Autoenrolment – 2016 Is The Year!!

Autoenrolment, the word that strikes fear into small business owners across the land. And 2016 is the year that it is going to happen for a huge amount of small businesses in the UK. According to this document http://www.thepensionsregulator.gov.uk/docs/automatic-enrolment-employer-staging-forecast.pdf from a base level of a few thousand businesses staging a quarter last year there are over 100,000 businesses staging each quarter this year peaking at over 200,000 in January-March 2017.

This means one thing. That it is not going to go smoothly! (In fact as I write this I can not access the pension regulator’s website which appears to have crashed!).

For those who don’t already know about autoenrolment (AE) the Pensions Act of 2008 brought in the obligation that all workers will have to opt out of an occupational pension plan of their employer, rather than opt in. This is referred to as automatic enrolment, and moves a significant amount of responsibility onto the employer to ensure that their employees are enrolled in a workplace pension scheme.

Employers are required to initiate automatic enrolment into their workplace according to a date referred to as a staging dates based on the number of employees in the company. The Pension Regulator will be writing to all businesses with a PAYE scheme giving them this date. There are penalties for companies who are not compliant by their staging date.

The only exception to Companies having to comply with the Autoenrolment rules is that Companies with only one Director and no staff, or multiple Directors none of whom have employment contracts. These companies can notify the Pension Regulator that they are not an Employer as far as Autoenrolment is concerned by completing an online form. Details are here: http://www.thepensionsregulator.gov.uk/en/employers/what-if-i-dont-have-any-staff.aspx

The minimum contribution up to April 2018 is 1% from the Employee and 1% from the Employer. The Employer can cover the Employee’s contribution but not the other way round. Details of the minimum contributions are here: http://www.thepensionsregulator.gov.uk/employers/contributions-funding-tax.aspx

We at Sutherland Black sent a considerable amount of time assessing the best way forward for our clients and already have helped a number of clients get to compliance. Firstly a suitable pension scheme needs to be set up if there is not already one in place. Then the next administrative hurdle is that all employees need to be assessed every month to check their eligibility and a complex set of rules applied. Letters to employees need to be generated and an upload of data is needed to the pension provider to inform them of the correct contributions for each employee. For clients where we carry out the payroll for an additional fee we can provide all the necessary admin. We will be recommending that clients who do their own payroll check that the software they use will carry out the AE functions and do the requisite upload to their pension provider.

We will be contacting all of our clients to check that they are compliant, but if you have any questions please give us a call.

 

Pension Contributions in Practice

Following on from the blog article on the new more flexible tax rules on Private Pension Contribuitions here is how it will work in practice for a typical client. Remember we cannot give financial advice but can only advise on the tax advantages of pensions. The rules are extremely complex and Independent Finacial Advice should be taken.

Most of our clients run Limited Companies. So on the whole it is sensible to pay Company contributions to a private pension. This means the money goes straight from the Company to the pension provider as opposed to being paid to a person through their salary and then being paid over (a personal contribution).

The annual allowance (that is the total of Company and Personal contributions) is now £40,000 a year. So over a period of time business owners can put a substanmtial amount of money in to their pension.

The most compelling tax reason for doing this is to avoid paying higher rates of tax. If a business owner wants to extract more than £38,600 a year in salary and dividends they will start paying higher rate tax on the extra. If they need the cash then there is no easy option apart from paying the tax. If however they are happy to lock it up until age 55 then they can pay Company Contributions as described above. These will be deductible for Corporation Tax.

The new rules then mean that at age 55 or above these monies can be extracted (with 25% taken tax free) and the prevailing marginal rate of income tax will be charged. If a person has retired quite possibly they will now not be a higher rate tax payer and so will only be paying the standard rate of income tax (currently 20%) on this income.

There are obviously many permutations and combinations of all of the above. However if you are a business owner and dont need the cash now, rather than letting it build up in the Company serious thought should be applied to whether pension contributions are appropriate. With the new more flexible rules coming in more and more business owners will be takinbg this route.

Why Pension Contributions are a no brainer for a Small Business Owner

We speak to a lot of small business owners and the suggestion of pension contributions is often derided. However recent changes to the tax treatment of private pension contributions make pension contributions an essential tool in the armoury of getting money out of a small business.

In the past the perception was that pension contributions were tax efficient at the time you made them but there were a number of downsides:

  1. The charges on the pension while it was invested were very high.
  2. When retirement age was reached there was no flexibility. You bought an annuity which gave you a low return, and then if you died early your children got nothing.
  3. You were locking your money up forever so if you sold your business and wanted to buy a dream house or boat your pension wouldn’t help.

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