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August 2023

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To August’s Business Companion News.  

We’re doing a special this month on a variety of pension–related issues.  These easily cause confusion – so do call us if you need some extra advice on 01422 847500.

If you have staff we recommend that you forward this issue to them. .

You can also find out more on our website.
August 2023
· Why choose a non contributory pension scheme?
· Pensions Tax Relief for Employees
· Making One-Off/ Additional Pension Contributions
· How to Access your Peoples Pension Account (as employee)
· August Questions and Answers
· August Key tax dates
Why choose a non contributory Workplace Pension Sheme? 
Here are the main reasons that we recommend you set up your Workplace Pension with employer only contributions.  If there are no employee pension contributions then as an employer you will pay at least 8% of your employees’ banded qualifying earnings (currently the band between £520 and £4,189 per month).There is obviously an extra cost to you as an employer, but we believe that this is offset by the advantages. You could balance the increased cost with a lower bonus/ wage increase for staff. Another option is a salary sacrifice arrangement with a simple letter confirming new salary and new employer pension contributions.  See this advice from the Peoples Pension.

Employee Contributions are subject to Employer National Insurance (NI)
The employer suffers 13.8% Employer NI on the wage for the employee to make the employee contribution.  This cannot be recovered. There is no Employer or Employee NI wasted on employer-only pension contributions

One-off employee contributions face a similar problem.  However these contributions suffer both 13.8% Employer NI and 12% Employee NI!

Employee Contributions may not get full income tax relief
When making employee contributions you may choose to have contributions taken before tax or after tax (with 20% tax relief then applied). See the article below which explains this in detail.  The first option results in the lowest paid staff missing out on the tax relief, the latter means that higher tax payers will not necessarily get all the tax back on their contributions, unless they complete a personal tax return.  By offering employee contributions only you avoid this problem.

A Non-Contributory Pension Scheme is Attractive to Staff
By making your pension scheme non contributory there will be no reduction in employees’ net pay (at a time when few can afford it). It acts as an incentive to existing and new employees. Staff will generally want to receive this benefit and will be less likely to Opt Out of the pension scheme.

Employees who Opt Out create Extra Work
Staff will be less likely to opt out of the pension scheme if they are not paying contributions themselves.  The opt out process requires the employee to contact the pension provider within a month or so in order to get contributions refunded.  During the three yearly re-enrolment process employers must re-enrol any employees who have previously opted out. This is a laborious and seemingly pointless exercise for employer and employee.  By offering Employer only pensions, employees are unlikely to opt out so avoiding this process.
Pensions Tax Relief for Employees
Making One-Off/ Additional Pension Contributions Mtop
There are two methods for applying pensions tax relief to employee pension contributions:

1 – The government’s favoured scheme is misnamed ‘relief at source’ method but is more properly called ‘Net Tax method’.  Tax (and NI) are imposed on the gross salary.  Then later relief is given on personal contributions at 20% by the pension scheme. This works correctly for basic rate taxpayers, however if you are a 40% taxpayer you are missing 20%. You can only get this back by declaring your own contributions in a personal tax return.  If you do not complete a tax return you lose 20% of your contributions. Some pension schemes (eg NEST) only offer this option. 

2 – The default for our clients is the ‘Gross Tax basis’ which the government misnames ‘net pay arrangement’.  This is the form of relief used by traditional occupational pension schemes.  In this method the employee pension contribution is deducted from the gross pay before tax is calculated.  As tax is imposed only after the contribution no further relief is required.  If you are a 40%/45% taxpayer no claim/ personal tax return is required.
You can make additional personal contributions into your workplace pension scheme as a one-off or on a regular basis.  But it is better if you can make an arrangement with your employer for them to make extra contributions on your behalf.

You need to be sure that your additional contributions (employee or employer), do not take your overall pension contributions over the £60k pa limit.  If you do your pension tax relief may be limited.  The previous Lifetime Allowance of £1milion has been scrapped.

If you are a higher or additional rate taxpayer you will have to complete a personal tax return if you are making addition employee (personal) contributions.  The reason is that the system is geared to standard rate tax payers only. If you don’t you will lose 20% of your contributions. If instead your employer makes the additional contributions for you this is not a problem.   

How to Access Your Peoples Pension Account (as an employee)
Note: In December 2022 B&CE provider of The People’s Pension changed its name to the People’s Partnership.  Contact details, bank details etc for the Peoples Pension remain unchanged.

Our standard workplace pension scheme uses the Peoples Pension.  As an employee/member you may want to access your online account to view and manage your pension pot and make other changes.

To set up an online account with the Peoples Pension (PP)
You will need your Peoples Pension Customer Number – this is on your joining letter and other correspondence from the Peoples Pension (or ring the Peoples Pension on 0300 2000 444).  You will also need your National Insurance number and contact details. Then Go To: PP Online Account Set Up
Once the account is set up you can log in and see details of your monthly contributions and projected pension pot at retirement.

Transferring in from other Pension Schemes
If you have had another Pension Scheme before you may wish to consolidate your pensions by transferring them into The People’s Pension. We recommend that you speak to an Independent Financial Advisor before choosing this option. Here is the Transfer In form.

Drawing Your Pension Savings 
You can take out your pension savings from the age of 55 or leave them invested for longer. For the  options for you see Peoples Pension – Your Options at Retirement. We also recommend that you speak to an independent Financial Advisor. 
August Questions and Answers top
August Key tax dates top
Q1. We have a new employee who did not present a P45 and did not complete the Starter Checklist. Which FPS starter declaration and tax code should we use? Answer

Q2. A client did not tell us that they were eligible for the Employment Allowance in tax year 2023/24 (despite us asking for confirmation!). After the July payrun, they did tell us. Can we indicate to HMRC that they are eligible even though the tax year is well underway? Answer

Q3. We have an employee who is taking unpaid parental leave in September for 2 weeks. This is so that he can be with the child as they settle into their new school. The employee has told us that he took unpaid parental leave at his previous employment. Do we need to take this into account? Answer
19 – Please note, in 2023, 19 August is a Saturday.

– Deadline for sending the Employer Payment Summary (EPS) for tax month ending 05 August
– Deadline for paying HMRC all PAYE, NICs, Student Loans and CIS deductions (less child-related statutory payments) if paying by a non-electronic method

22 – Deadline for paying HMRC all PAYE, NICs, Student Loans and CIS deductions (less child-related statutory payments) if paying electronically. HMRC must have cleared funds on or before this date

28 – Except for Scotland, Monday 28 August 2023 is a UK Bank Holiday.

Need Help? top
New Clients Welcome top
Please contact us if we can help you with these or any other tax or accounts matters.

In addition, if there’s anyone else who you think would benefit from the newsletter, please forward the email to them or ask them to contact us to be added to the newsletter list.
If you are not already a client and are interested in becoming one, we would love to discuss how we can help and provide you with a competitive quote for our services.

See details of our Business Companion Service.
About Us top
Simple Accounting Limited offers a cost effective Business Companion service to business owners who use MYOB, Acclivity, Ledger One, Xero, Quickbooks or Clearbooks.

‘All clients using these software packages can benefit from our support. Visit our website for a look at the resource on offer.’

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