There is no limit on the amount of contributions that can be made to a SIPP or a SSAS, however, exceeding the Annual Limit or Annual Allowance as detailed by HMRC during a tax year will result in personal tax charges levied through self assessment.
Annual Limit
Personal contributions paid by the member can be up to 100% of the individual’s relevant UK earnings that are chargeable to income tax for the tax year, and will qualify for tax relief.
If an individual has no relevant earnings they are still able to contribute up to £3,600 gross per annum.
Personal contributions are paid net of basic rate tax. Hornbuckle Mitchell will reclaim the basic rate of tax from HMRC, this can take between 6 & 11 weeks depending on the date the contribution is paid. If a client is a higher rate tax payer the difference can be claimed through their self assessment form.
Annual Allowance
This is the total annual amount that can be paid into a SIPP or a SSAS from employer and personal contributions that will qualify for tax relief.
The total aggregate amount (from all sources) has been set as follows:
- 2009/10 £245,000
- 2010/11 £255,000
The Treasury will set the limits on a 5 yearly basis.
The annual allowance is not applicable in any year when the member wholly crystallises all the benefits in one scheme or arrangement, therefore unlimited contributions may be made.
An employer can make contributions regardless of earnings, but subject to the Annual Allowance to qualify for tax relief, provided that the contribution is wholly and exclusively for the business and not the tax payer. These contributions are subject to corporate tax relief if applicable and are dealt with by the company, therefore there is no guarantee that the tax relief will be allowed by HMRC.
As employer contributions are accountable during the company’s trading year, if a single contribution is to be larger than £500,000 or exceeds 210% of the contribution paid in the previous period, then the contributions may be spread over 2 or more accounting periods in order for full tax relief concession.
If the total aggregate amount is above the annual allowance a tax charge of 40% is charged to the member via self assessment.
UK Relevant Earnings can be determined by:
For Employees:
- P60 or week 52 payslip
- Net Earnings on Self Assessment form
- Letter from employer confirming salary
- Bonuses and Benefits in Kind (P11d benefits) can be included
For Self Employed:
- Net Profits on a set of audited accounts
- Net Earnings on Self Assessment form
- Dividend income and rental income are not classed as UK Relevant
Earnings