Prime Minister, David Cameron has confirmed that foreign companies that own property in the UK will be forced to reveal their beneficial owners in a new public register.

Earlier this month, the Prime Minister, David Cameron hosted the Anti-Corruption Summit in which he announced that any foreign company that wishes to buy UK property or bid for central government contracts here will have to join a new public register of beneficial ownership information before they can do so.

This will be the first register of its kind anywhere in the world and crucially, will also include companies who already own property in the UK, not just those wishing to buy.

The new register for foreign companies will mean corrupt individuals and countries will no longer be able to move, launder and hide illicit funds through London’s property market, and will not benefit from our public funds.

This announcement speaks for itself. In recent years, the government is, and has been, committed to fight against tax avoidance, and as can be seen, the fight continues….


An initial look at the factors in the dividend/salary/pension contribution decision in 2016/17.

The arrival of 2016/17 marked:

  • The start of the new dividend tax regime, specifically targeting shareholder directors who used high dividends in place of salary/bonus payments; and
  • A cut in the standard lifetime allowance and the introduction of annual allowance tapering for high earners.


Both these changes have an impact on the salary v dividend v pension contribution decision, which will be covered in three bulletins. In this bulletin we look at some of the basic considerations in making the selection:

  • Generally, a salary of £8,060 will make sense before any other payment is considered. The figure is chosen to match the primary earnings threshold and means that there is no employee or employer NIC involved, but the employee gains an NIC contribution record.


At this level, the salary will also fall fully within the individual’s personal allowance assuming there is not more than £2,940 of other earned/pension income and that the personal allowance is not subject to £100,000+ tapering. Salary is an allowable expense so provides a corporation tax saving.

  • A further consideration is the employment allowance, which effectively negates the first £3,000 of employer’s NIC, but not (for 2016/17 onwards) for companies where the director is the sole employee. This is an obvious incentive for a director of a one-person company (eg consultancy) to employ their spouse/civil partner, typically paying up to their available personal allowance. If the spouse/civil partner is already a taxpayer, then it will usually not be worth paying them beyond £8,060, to avoid any NIC cost. There will be tax on these earnings, but at the margin this will generally be less than the alternative of a dividend payment to the director.


If there is any unused employment allowance after covering employer’s NIC payments for other employee, then it can be used to increase the director’s salary, but not beyond the remaining unused personal allowance. However, the net benefit beyond £8,060 is reduced because 12% employee NICs will bite.

Once both employer and employee NICs bite, dividends become a more attractive option, where payment is possible. This looks at the marginal situation above the (employer’s) secondary threshold of £8,112:

  Salary Dividend
Gross profit 1,000.00 1,000.00
Corporation tax @ 20% N/A (200.00)
Dividend payable N/A 800.00
Employer’ NIC @ 13.8% (121.27) N/A
Salary 878.73 N/A
Employee’ s NIC @ 12.0% (105.45) N/A
Pre-tax amount 773.28 800.00

As the rate of tax on earnings in this band will never be less than that on dividends, the dividend wins.

If we look at the situation above the upper earnings limit/higher rate threshold, the advantage of dividends remains, but is reduced (as the Chancellor intended):

  Salary Dividend
Gross profit 1,000.00 1,000.00
Corporation tax @ 20% N/A (200.00)
Dividend payable N/A 800.00
Employer’ NIC @ 13.8% (121.27) N/A
Salary 878.73 N/A
Employee’s NIC @ 2.0% (17.57) N/A
Pre-tax amount 861.16 800.00
Net to 40%/32.5% taxpayer 509.67 540.00
Net to 45%/38.1% taxpayer 465.73 495.20

However, remember that to reach this stage, at least £4,193 of employee NICs will have been paid.

  • The abolition of the 10% tax credit gives dividends another advantage over salary/bonus in that gross income is kept down’ as the table shows:


Gross income and gross profit cost to produce £1,000 net of tax and employee NIC income

Tax rate + NIC

Salary/Dividend (above allowance)

Salary Dividend


Profit Cost




Profit Cost


20% + 12% / 7.5% 1,470.59 1,673.42 1,081.08 1,351.35
40% + 2% / 32.5% 1,724.14 1,962.07 1,481.48 1,851.85
45% + 2% / 38.1% 1,886.79 2,147.17 1,615.51 2,019.39

The smaller gross equivalent achieved by paying dividends is of increased importance when the (unindexed) thresholds for child benefit tax, phasing out of personal allowance, tapered annual allowance, etc. are considered. Also significant is that the gross profits cost of the dividend route is less than the salary alternative for each tax rate.

  • As a general rule, dividend payments are directly proportionately to shareholdings, which means the dividend or salary choice can become impossible to make when there is a mix of shareholdings and total remuneration targets.
  • Dividend payments rather than salary may have adverse effects where tests are generally salary-related, e.g. mortgage borrowing capacity. However, the issue of lost S2P no longer arises in the world of the single-tier state pension.
  • When considering the alternative of a pension contribution, the first question now is whether it is possible in the light of the tapered annual allowance, reduced lifetime allowance and any transitional protections in place. If none of these are a constraint, then the pension contribution is a completely tax-free exercise at the point of employer payment of the contribution.


The simplest way to consider the end value is to ignore any investment return and assume a UFPLS is drawn, i.e. 75% of the contribution attracts (retirement) marginal rate tax and the other 25% is tax free. Thus, for example, a higher rate taxpayer receives a net £700 (.75 x £1,000 x .6 + .25 x £1,000) per £1,000 of contribution. The corresponding figures for basic and additional rates are £850 and £662.50.

Comparing numbers at this stage starts to get complicated because of the dividend allowance and assumptions about how any dividend drawn would be invested (remember there is a £20,000 ISA limit from 2017/18). For a basic rate taxpayer, there is only limited advantage (via the 25% tax-free element) until the dividend allowance is exhausted. Higher and additional rate taxpayers will see more benefit, particularly if their marginal rate falls in retirement.

  • For those aged 55 and over, there is another avenue to consider in terms of drawing pension benefits rather than dividend/salary as a source of income and making employer pension contributions.



We examine the dividend/bonus/salary options for shareholder/directors who have reached the minimum retirement age and can use the small pots rule to draw a lump sum from existing pension arrangements as part of their remuneration structure. 

This option is more limited than using PCLS and will involve some tax, but has three potentially important advantages:

  1. As the non-taxable element of the lump sum payment is not classified as a PCLS, the recycling rules are not an issue;
  2. The commutation does not count as a form of flexible access, so the £10,000 money purchase annual allowance is also irrelevant; and
  3. A small pots commutation is not a Benefit Crystallisation Event, so there is no testing against the individual’s Lifetime Allowance, but see below re eligibility.



The rules for small pots payments are set in in PTM063700. These have changed several times in recent years and can now broadly be summarised as:

  • The individual must have reached minimum pension age (currently 55) or be entitled to take their benefits earlier because they either have a protected pension age or meet the ill-health condition;
  • For the lump sum payment to be an authorised payment, the individual must have some available lifetime allowance when payment is made;
  • The individual’s benefits under an occupational or public service scheme making the paying the small lump sum and any related scheme, have a total commutation value not exceeding £10,000. For personal pension the limit is at arrangement level;
  • The commutation must extinguish the individual’s entitlement to benefits under the paying scheme, but rights in a related scheme do not also have to be paid as a lump sum;
  • For occupational and public service schemes, in the three years before payment, there have been no recognised transfers-out relating to the member, from either the scheme paying the small lump sum, or from any related scheme (which in this case includes both occupational pension schemes and public service pension schemes – so long as they are registered pension schemes relating to the same employment as the paying scheme);
  • For occupational and public service schemes the individual must be arm’s length from any sponsoring employer of the scheme making the payment and any other registered occupational pension scheme which relates to the same employment as the paying scheme. In this context an individual is considered to be at arm’s length if:
  • not a controlling director of the sponsoring employer (in relation to either the paying scheme or any related scheme); and
  • not connected (s993 ITA 2007) with a person who is a controlling director of the sponsoring employer (in relation to either the paying scheme or any related scheme).


This rules out EPP and other occupational schemes established for controlling directors unless they were set up as master trusts with no sponsoring employer (e.g. NEST).

  • For schemes other than occupational and public service schemes (primarily personal pensions), no more than three small pots payments may be made. No such limit applies to occupational and public service schemes (the arm’s length proviso is deemed sufficient protection).


In practice the use of multiple arrangements in many older personal pensions may mean some consolidation will be required to take maximum advantage of the rules. Similarly, where there is one arrangement, it may be necessary to subdivide via the establishment of, and transfer to, new arrangements. Some providers will offer this as a service, but there are potential adverse consequences if protection is in place.

As an example, consider the same 40% tax paying director as in our earlier (PCLS) Bulletin and assume that there is a maximum small pot of £10,000 available:

  • Its net value would be:


Gross Fund £10,000
Tax-free element (£2,500)
Taxable under PAYE £7,500
Tax @ 40% (£3,000)
Net lump sum £7,000


Arrange for their company to make a pension contribution of £13,734, assuming available annual allowance and no lifetime allowance constraints. This figure equates to the cost of providing £7,000 of net pay:


Gross Profit £13,734.48
Employer’s NIC (£1,665.52)
Bonus £12,068.96
Employee’s NIC (£241.38)
Income tax at 40% (£4,827.58)
Net Pay £7,000.00


The employer pension contribution would effectively increase the individual’s total pension benefits by a net £3,734, including a rise in their PCLS entitlement of £933.

The process can be repeated each year or the amount increased, provided further small pots are available. In theory it could be combined with the PCLS route described in the earlier Bulletin to divert £14,500 of net income into pension contribution of £28,450:

  £7,500 PCLS £10,000 Small Pot Total
Gross Profit £14,715.52 £13,734.48 £28,450.00
Employer’s NIC (£1,784.48) (£1,665.52) (£3,450.00)
Bonus £12,931.04 £12,068.96 £25,000.00
Employee’s NIC (£258.62) (£241.38) (£500.00)
Income tax at 40% (£5,172.42) (£4,827.58) (£10,000.00)
Net Pay £7,500.00 £7,000.00 £14,500.00

One point to watch is that the small pots payment is genuinely a small pots payment. Some providers may say small pots, but then use a UFPLS. While the net lump sum will be the same, the UFPLS will trigger the money purchase annual allowance.


AE is a success but with concerns about master trusts and the impact of LISA.

The Work and Pensions Committee have published a report into the overall success of automatic enrolment (AE) but raise some important questions with regards to the master trusts and the possible detrimental effect that the Lifetime ISA could have on pension savings.

The Work & Pensions Committee inquiry into AE was instigated with the principal objective of establishing whether small businesses were being adequately supported in introducing AE. Evidence, the Committee found, pointed to two significant concerns: the regulation of multi-employer occupational pension schemes known as master trusts, and impact of the proposed introduction of a new savings product, the Lifetime ISA.

The Committee states that AE has so far been a tremendous success. An additional 6.1 million people are enrolled in a workplace pension and saving for their retirement, with many more to follow. Employer compliance rates are high and employee opt-out rates are low. It is therefore essential that the continued success is not undermined.

Master Trusts 

The Committee found that gaps in pension regulation have allowed potentially unstable master trusts onto the market. Should one of these trusts collapse, there is a very real danger that ordinary scheme members would lose their retirement savings. The Pensions Minister on speaking to the Committee stated that she wants a Pensions Bill for stronger regulation of master trusts.

Concerns about master trust regulation begin when a master trust is set up. “Rigorous standards” and capital and solvency requirements enforced by the FCA act as barriers to entry for contract-based pension providers. By contrast, Lesley Titcomb, Chief Executive of TPR, told us that she was not able to issue equivalent regulatory authorisation for trust-based schemes “we just learn about a master trust being set up through the Revenue telling us, so there are no checks at the gateway”.

The TPR also acknowledged that some of the smaller master trusts “may not be run by competent people”. Inadequate regulation increases the prospect of “substandard governance and investment strategies”, which could make poor investment returns for scheme members. A proliferation of poorly-governed master trusts would also limit their ability to become large in scale, undermining their ability to provide cost-effective retirement saving.

The Chief Executive of the Pensions and Lifetime Savings Association (PLSA) Joanne Segars, warned that the financial burden of winding up a failed undercapitalised master trust may fall on individual member pension pots. The Pensions Minister shared this concern and has called for a Pensions Bill to introduce stronger regulation of master trusts.

Employer Liability for AE

The DWP have stated unambiguously that employers are not liable for their choice of AE pension scheme. Legal experts, however, have given evidence to the enquiry on the basis that there could be grounds for legal action if employers cannot demonstrate due diligence. The committee.  We recommend DWP use their response to this report to make a clear and comprehensive statement about an employer’s potential liability. DWP should also confirm where liability will fall if a scheme performs badly or fails. This would provide reassurance to small and micro-employers choosing a scheme.

AE support for employers 

The committee found that the decision not to develop the HMRC Basic PAYE Tools (BPT) to support AE was a mistake.

The BPT are trusted by small and micro employers, many of whom will not be able or willing to use commercially available software. TPR has acknowledged that small and micro employers need automated support to cope with AE. Its solution has been to build an entirely separate Basic Assessment Tool that has limited functionality and cannot send information to pension providers. This risks undermining AE. The committee therefore recommends that DWP work with HMRC to expand Basic PAYE Tools to support small businesses in meeting their automatic enrolment obligations.

Impact of the LISA 

For some employees, notably higher earners, saving for retirement in a Lifetime ISA may compliment pension saving.  Those with a limited disposable income, however, will need to weigh competing priorities and many will be faced with the option to either save in a LISA or remain in their workplace pension. Whatever the attractions of the LISA, the Committee stated that it must not be presented as a direct alternative to AE. Savings under AE carry an employer contribution, which will not be available in the LISA. Opting out of AE to save for retirement in a LISA may leave people worse off. The Committee found that Government messages on this issue have been mixed. While the DWP has been very clear that the LISA is not a pension product, the Treasury has proffered an alternative view. The Committee recommends the Government develop a communications campaign that highlights the differences between the LISA and workplace pensions and should make it clear that the LISA is not a pension and that, for employees who have been automatically enrolled, any decision to opt-out is likely to result in a worse outcome for their retirement. The Government should also conduct urgent research on any effect of the LISA on pension saving through AE. The findings of this research should be reported in time for the 2016 Autumn Statement and the evidence will be reviewed by the Committee before the introduction of the LISA.

Building on AE 

The Committee recommends that as part of its 2017 review of AE, the Government considers:

  • removing the lower qualifying earnings band for contributions and lowering the earnings trigger threshold in order to bring more low paid people, including many more women, into AE;
  • mechanisms for automatically enrolling self-employed workers, including how the income tax self-assessment system might be used;
  • approaches to increasing contributions beyond the statutory minimum of 8% of qualifying earnings, including mandatory increases in employee and employer contribution rates and means of encouraging greater voluntary contributions;
  • steps necessary to create a single, comprehensive pensions dashboard by 2019 and the degree of Government intervention necessary to deliver on its pledge.



The DWP has launched a new online Pension Tracing Service.

A new DWP website has been launched by the Pension Tracing Service to help people find their lost pension savings.

There is currently an estimated £400 million in unclaimed pension savings. This is money people have previously saved for their retirement, and the new website will better help people to locate their hard-earned savings.

Our wider pension reforms are creating a dynamic market where people have greater freedom and flexibility over their savings, and we expect our reforms will increase demand for the Pension Tracing Service.

Minister for Pensions, Baroness Ros Altmann said:

“People have had on average 11 jobs during their working life which can mean they have as many work place pensions to keep track of. 

The new DWP online Pension Tracing Service helps reunite people with their lost pensions, giving details of providers to help people track them down. 

I’d encourage anyone who thinks they may be missing out on any savings to use the free online service.”

The new service is simple to use and provides trace results immediately. Individuals enter their former employers’ details into the online database and are provided with contact details for pension schemes they may have paid into.

The Pension Tracing Service is a free service that enables people to search a database of more than 320,000 pension scheme administrators.


HMRC appear to have been issuing P6 coding Notices in error in respect of tax-free pension scheme death benefits.

It appears that for some reason, HMRC are issuing P6 Coding Notices in error in respect of death benefits that are not liable to income tax. HMRC are looking into the reason for this error. In the meantime, they still require scheme administrators to report these payments through the normal RTI process.

The test of the HMRC statement is set out below, and it will also be included in the delayed Pension Scheme Newsletter 78 when it is issued.

“Pension flexibility – reporting of non-taxable death benefits through RTI

In Pension Schemes Newsletter 72 we gave guidance on the reporting of non-taxable death benefits through RTI from April 2016. 

We have received a number of queries from pension payers/providers regarding P6 tax coding notices being issued by HMRC for death benefit payments that are entirely non-taxable (i.e. an entry in data item 173 only of the full payment submission (FPS). 

P6 coding notices are not relevant to these payments. We are currently investigating this to identify why these notices are being issued, however in the meantime scheme administrators should stop reporting these non-taxable death benefit payments with immediate effect. You should continue to keep records of these payments. 

You should not report these entirely non-taxable payments at all for 2016 however you will be required to start reporting these again from April 2017 onwards. 

This guidance only applies to death benefit payments where the whole of the payment is non-taxable. All other payments including non-taxable elements should continue to be reported as per previous guidance. 

Any pension payer/provider who needs further guidance on this please email and put reporting non-taxable death benefit payments in the subject line of the email 

We are sorry for any inconvenience or confusion this may cause.”

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