Treatment for Pension?

HollysanHollysan Feels At HomeRegistered Posts: 68
I have a ltd co client who started a company pension last year for the Director. The company contributes £1000 per month and the Director has £500 deducted at source from his salary. My question is this - where do I post the Director's contribution? It is deducted from gross salary so does not appear in PAYE prepared by the Director; they have included it with the company contribution, but if I leave it there it will be treated as a company expense.

Does anyone know the correct treatment? I just can't seem to get my head round it this morning!

Many thanks,

Hollysan

Comments

  • Rozzi RainbowRozzi Rainbow Trusted Regular Registered Posts: 465
    Surely it is a company expense? If it wasn't deducted from his salary, his salary would be £500 more, which would just be additional salary, which would be a company expense.

    Likewise when the company pays the PAYE deducted from an employee over to HMRC, this is still a company expense as it forms part of gross wages.
  • readerreader Experienced Mentor MAAT, AAT Licensed Accountant Posts: 1,038
    Surely it is a company expense? If it wasn't deducted from his salary, his salary would be £500 more, which would just be additional salary, which would be a company expense.

    Likewise when the company pays the PAYE deducted from an employee over to HMRC, this is still a company expense as it forms part of gross wages.

    I agree with the above; at the end of the day the company is spending £1,000 on the director's pension (£500 as a direct contribution and £500 via payroll). Both lots of £500 are being paid by the company (and the director will get this money back as an annuity when he retires).

    It is probably more tax efficient to pay the pension via payroll as the pension deduction is probably pre-tax (i.e. PAYE is charged on the the balance of the gross wages after the pension contribution has been deducted).
  • HollysanHollysan Feels At Home Registered Posts: 68
    Thank you both; yes of course you are right. Seems obvious now.

    Hollysan
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