pensions

Question 1

what is the point of occupational pension scheme for employee

Answer 1

• it is a tax saving tool that reduces your taxable employment income (see employment income pro forma)

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Question 2

what is the point of occupational pension scheme for employers

Answer 2

• reduces the taxable trading income as if the employer does this payment for their employees it is considered an allowable expense and hence reduces taxable trading income

Question 3

what is the advantage of a personal pension contribution?

Answer 3

• you only Pay 80%, the other 20% is paid by the business
• you also increase your income tax bands so you pay less tax
• it reduces your ANI, which makes your personal allowance larger

Question 4

how to calculate the maximum amount that can be contributed to the personal pension contribution?

Answer 4

you pick the lower of :

-actual gross contribution

OR

higher of :
-hmrc standardised figure of -3600

or relevant earnings

• trading income + employment + fhl

Question 5

When does someone not have to pay tax for pension contributions?

Answer 5

when their total contribution is less than the annual allowance of 40k

Question 6

when does someone have to pay tax for pension contribution?

Answer 6

1. if your total contribution( OPC+ PPC) is more than 40k

Question 7

how to calculate the tax applicable to the excess charge?

Answer 7

annual allowance charge(AAC)= excess contribution x marginal tax rate

Question 8

when is the tax applied

Answer 8

after the income tax liability bands is used

Question 9

when can annual allowances be brought forward

Answer 9

Annual allowance of the last 3 years can be carried forward in a FIFO basis, if the individual is a member of a registered pension scheme

Question 10

how to calculate the 3 year annual allowance( aka total annual allowance?)

Answer 10

using a FIFO basis find the annual allowance from each of the last 3 years and add them together to the current year

Question 11

how to calculate unused annual allowance ?

Answer 11

AA(40k) - contributions

Question 12

how do you calculate adjusted income

Answer 12

net income x
+ employee ops x
+employer ops + PPC x

           ai                         x

Question 13

what is the impact on annual allowance of adjusted income?

Answer 13

1. if adjusted income is less than 240k, the annual allowance is 40k
2. if Adjusted income is more than £240,000 than Annual allowance(40k) is reduced by:

• (Adjusted Income -£240,000)/2

3. But if Adjusted Income Exceeds £312,000 than Tapered Annual allowance is restricted to £4,000

Question 14

how to calculate relevant earnings ?

Answer 14

trading income. x
employment income. x
furnished holiday letting. x

relavant earnings. X

Question 15

what is the difference in how employer contributions are treated in occupational pension income and personal pension income?