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Hope you’re doing well.
I have a few doubts in this chapter.
1. The occupational pension that we deduct directly from our employment income is the employee’s contribution only or is it both employee plus the employer’s?
2. Total pension inputs (TPI) include employer’s contribution too (both personal and occupational). In Illustration 3, the question talks about personal pension contributions. So can a question come up that also includes employer’s contribution towards occupational pension therefore making it’s way into the addition of more tax liability?
3. How is the exempt benefit accounted for under employment income?
It’s mentioned that we have to put a zero if it comes up in a question but if the TPI exceeds annual allowance, then we have to pay the charge. So how is it accounted for under the benefit under employment income?Thank you.
4. The ANI that we calculate normally, ie,
Net income + gross gift aid donation + gross personal pension contribution = ANI
Does the personal personal contribution also include employer’s contribution or is it just the employee’s contribution towards the personal pension scheme?
Thank you.
I have a few doubts in this chapter.
1. The occupational pension that we deduct directly from our employment income is the employee’s contribution only or is it both employee plus the employer’s?
EMPLOYEE’S CONTRIBUTION ONLY.
2. Total pension inputs (TPI) include employer’s contribution too (both personal and occupational). In Illustration 3, the question talks about personal pension contributions. So can a question come up that also includes employer’s contribution towards occupational pension therefore making it’s way into the addition of more tax liability?
YES.
3. How is the exempt benefit accounted for under employment income?
It’s mentioned that we have to put a zero if it comes up in a question but if the TPI exceeds annual allowance, then we have to pay the charge. So how is it accounted for under the benefit under employment income?IT’S AN EXEMPT BENEFIT SO THE AMOUNT TO INCLUDE IN THE CALCULATION OF EMPLOYMENT INCOME IS ZERO.
IN THE CALCULATION OF TPI YOU WOULD INCLUDE THE AMOUNT PAID BY THE EMPLOYER.
Net income + gross gift aid donation + gross personal pension contribution = ANI
THIS IS NOT CORRECT.
ANI = Net income LESS gross gift aid LESS gross PPCs
Does the personal personal contribution also include employer’s contribution or is it just the employee’s contribution towards the personal pension scheme?
JUST THE EMPLOYEE’S GROSS PPCs.
THE ONLY TIME THE EMPLOYER’S CONTRIBUTION TO ANY SCHEME HAS A MONETARY EFFECT IS IN THE CALCULATION OF TPI.
Oh thank you so so much.
I was all tangled up in what goes where. And because of these small confusions I could pick up the wrong answers.
Also I wanted to ask about PAYE.
Does PAYE include occupational pension contributions as well as NIC?No. PAYE accounts for tax and NIC and is paid to HMRC.
Pension contributions are paid into a pension scheme.Okay.
So they’re (occupational pension) deductible against employment income separately and then PAYE (income tax and NIC) are then deducted after that.
I got it now.
Thank you once again. I might have more doubts coming before the exam. And I apologize that I’m asking so many questions.
Income tax deducted under PAYE is calculated AFTER the deduction is made for the employee’s occupational pension contributions.
NO deductions are allowed from CASH remuneration for calculating employees’ NIC.
Income tax deducted under PAYE is calculated AFTER the deduction is made for the employee’s occupational pension contributions. (I have understood this part)
NO deductions are allowed from CASH remuneration for calculating employees’ NIC. (I didn’t quite get. Why is no deduction allowed?)
I’m sorry I didn’t know about this. I thought NIC gets deducted from employee’s employment income.
Okay so for CASH remuneration we don’t deduct NIC.
So other than Cash remuneration we can?
NIC is calculated on CASH REMUNERATION.
No deductions for allowable expenses, no additions for benefits as there are when calculating employment income (see the chapter on NIC).
IT is calculated on EMPLOYMENT INCOME which includes benefits and after allowable employment expenses, which include employee occupational pension contributions (see the chapters on IT and employment income).
So NIC and IT are calculated on different figures.
Both are deducted under PAYE from gross employment income so the employee receives employment income AFTER the deductions for employee occupational pension contributions, employee NIC and IT.
Okay so that’s how it is calculated.
Even though I read the chapter on NIC but I still didn’t get it at that time.Now it’s completely clear.
IT is calculated in a different way and NIC is calculated on cash remuneration.
But under cash remuneration, we don’t deduct allowable expenses or add benefits as we do under normal employment income calculation when calculating IT.And then after calculating IT and NIC separately we bring it under PAYE. And then we deduct this from gross employment income.
Oh this is so much clearer now.
Thank you so so much.
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