Chartered Accountants of Poynton, Cheshire

There have been considerable changes to the pension contribution rules over the last couple of years.

In summary, these are as follows:

• Any individual can make payments of £3600 per annum gross of tax, whether they have an income or not.

• If an employer makes a contribution on behalf of an employee, this will be tax deductible in that employer's accounts as long as the payment is made 'wholly and exclusively1 for the purposes of the trade.

• The maximum any individual can pay in any pension payment period (which is usually the same as the tax year) is normally £21,5000 and any contributions over this will be subject to income tax of 40%. There are some exceptions to this rule.

• There is no longer a provision which allows excessive personal pension contributions to be carried back to the prior year. Some special rules remain in place for retirement annuity contributions.

From 1 October 2007 this is set at £5.52 per hour for workers aged 22 or  older.  The reduced development rate for employees aged between 18 and 21 is £4.60 per hour.  The rate for workers who are under 18 and no longer of compulsory school age is set at £3.40 per hour.

It is vital that, as an employer, you show full and correct National Insurance numbers on all documents on which you record contributions, particularly when the forms are submitted to HMRC as part of PAYE compliance.

If an employee does not know their National Insurance number, you can trace it through HMRC by filling in HMRC leaflet CA6855.

If you have doubts over the accuracy of the National Insurance numbers that you hold, HMRC can check and update them for you.

The full procedure is set out in HMRC leaflet CA89.