Are there any tax issues you should consider before enrolling in a workplace pension scheme? For large companies pension auto enrolment has been in place for almost a year but it will soon affect almost all companies. In mid-2015 all employers with 30 or less employees will with a few exceptions be required to have a workplace pension scheme in place. Nearly half of small employers are unaware of the deadlines and the obligations of auto enrolment.
If you are a company with only one director and no employee’s then the good news is that pension auto-enrolment does not apply and you do not need to get involved in a pension scheme.
Anyone familiar with pensions will know that tax plays a big part in the rules and regulations. The good news is that auto enrolment is no different to any other pension scheme.
Where your auto-enrolment scheme is a money purchase arrangement any contributions you make will qualify for basic tax relief at source. i.e. if you contribute £40. HMRC will add another £10 making a total of £50. HMRC’s contribution is equal to basic rate tax of 20%. If your rate of tax is higher you need to claim additional tax relief through a self-assessment return. If you do not need to submit a self-assessment you can ask HMRC to adjust your tax code accordingly.
If you are an employer auto enrolment will affect more than tax relief. It will be a major change to payroll procedure. Some payroll software providers have already incorporated auto-enrolment into their software programs. Even if you outsource your payroll admin you will need to ensure your payroll is compliant prior to collecting and paying pension contributions from and for your employees.
Make sure your software updates are completed promptly to ensure any changes in relation to auto-enrolment are in place in time for your company starting an auto enrolment scheme.
There are many new companies offering auto-enrolment software and although fancy advertising and cheap prices are appealing. HMRC advise that if you are happy with your current software provider you are probably best to stay with them as long as they are compliant with the new auto-enrolment legislation. This will also save time as you will not need to familiarise yourself with new software at the same time as familiarising yourself with the new pension scheme legislation.