Ni and pensions

jackieshep

Please can anybody help,

I think I must be missing something obvious here but I can't see it.

As I understand, pension contributions get NI relief and tax relief, but on the passed paper (June 2008) the tax has been calculated on gross pay less pension contribution, and the NI has been calculated on the gross pay.

I'm very confused

payrollpro

Jackie,

There is one circumstance in which pension contributions are NIC deductible but it's a very specialised area of pensions and taxation and dealt with under salary sacrifice and I doubt if it is part of your studies.

Other than that pensions must always be included for NIC calculations even if they are deducted in the income tax computations. The reason is quite simple, pension contributions are almost always tax deductible and therefore most qualify for this at payroll stage though personal pensions, stakeholder style ones do not.

Occupational pensions are always tax deductible in payroll as long as they are tax approved. Personal pensions are tax approved and tax deductible but it is the provider of the scheme who applies for the relief so employers do not deal with it.

With NIC's there is a need to have complete control over NIC relief because the relief is different and based on rights to both state pensions, basic and second. If you are in an occupational scheme which is contracted out you only get the basic state pension and therefore pay less NIC than those who get both. This is why contributions at table D/F (9.4%) are less than those at table A (11%) and this is how the relief is given and not by deducting the pension contribution before doing the NIC.

In most private and personal pensions th eprovider, again, has to apply for the relief so it is not done in payroll.

Its confusing sometimes but practice with the different types of scheme and you will see th e pattern.

Payroll pro

jackieshep

Many thanks your your help