23/09/2022
SSAS Blog ~ 23 September 2023
SSAS for business ~ Survive or Thrive
www.my-ssas.co.uk
With increasing regulation in the pensions industry more business owners are turning towards a SSAS for a whole host of reasons.
There is a compelling argument that:
Every company in the UK should have a SSAS AND
In addition, every employer in the UK should be using Salary Sacrifice now known by the more PC term, Salary Exchange for not only their SSAS but also their Workplace Pension.
Not to mention of course that if you employ less than 12 staff your Workplace Pension CAN be your SSAS.
So, let us start with the basics.
What exactly is a SSAS???
SSAS stands for:
Small Self-Administered Scheme (SSAS)
Which is a pension scheme normally set up by a limited company on a money purchase (or “defined contribution”) basis. Although we are now starting to see the emergence of DB or Final Salary SSAS. More about this later. Any limited or family run businesses can set up a SSAS for the benefit of the owner, company directors and family members who are employees, or indeed any employee provided you do not employ more than 10 employees as the ‘Small’ part refers to there being no more than 11 members in the scheme.
A small, self-administered pension scheme (SSAS) is a type of pension that can give extra investment flexibility and many other significant benefits.
How does a SSAS work?
A SSAS is run by its ‘Trustees’, (sounds scary but it is really not) who would usually also be the members of the scheme.
SSAS contributions are made by the members and/or the employer. Contributions by individual members qualify for tax relief, whereas contributions made by the employer might be deductible against profits, subject to certain conditions. This is an area where all employers should consider using Salary Sacrifice/Salary Exchange which can make a stark difference to all concerned in a positive way (except the Government / HMRC that is).
One question always asked is: What's the difference between a SSAS and a SIPP?
www.my-ssas.co.uk
A SSAS can own 100% of the sponsoring company shares so long as the value does not exceed 5% of the value of the SSAS. A SIPP cannot do this if the member controls the company.
The single biggest reason for a SSAS over a SIPP is the far greater flexibility in terms of loan back which is up to 50% of the fund for a connected employer. This is significant and again can be the difference for an employer between survive or thrive.
One of the main differences however is that a SSAS is not regulated by the draconian Finical Conduct Authority or FCA who, of late, have been responsible for the closure of a number of SIPP schemes.
This does not mean that SSAS schemes are not regulated: they are. They are regulated by the same regulators who oversee all company pension schemes in the UK, ‘The Pensions Regulator’ or TPL. The scheme also must be authorised by HMRC.
www.my-ssas.co.uk
So, why have a SSAS?
A Small Self-Administered Scheme (SSAS) is, as we have established, a pension scheme set up by a limited company on a money purchase (or “defined contribution”) basis but can be on a DB final salary type basis.
The members are appointed as ‘trustees’ to have control and flexibility over the scheme’s assets and pension investment choices. If all members are trustees, a SSAS scheme benefits from many exemptions from pension legislation applicable to other pension schemes and so permits a greater range of investments and fewer administrative requirements than other occupational schemes.
A SSAS is registered with HM Revenue and Customs (HMRC) and so benefits from the usual generous tax relief afforded to pension schemes such as:
1. Company and personal pension contributions are deductible against tax and Salary Sacrifice/Salary Exchange can be used
2. Loan back facility of up to 50% of the value of the SSAS
3. Income Tax is NOT charged on allowable investments
4. No capital gains tax due on disposal of investments
5. A tax-free lump sum on retirement is allowed.
6. Tax free death benefits in the form of a pension or a lump sum on death before age 75*
*On attaining age 75 death benefits are taxed at the recipient's marginal rate of income tax.
www.my-ssas.co.uk
There are rules and regulations laid down by HMRC relating to each of the above as you would expect from a government agency, especially HMRC who just hate giving any tax away/back. Any infringement of rules is severe, so it is particularly important that no rules are broken.
HMRC requires at least one individual or company to be registered with them as the official Scheme Administrator. Whoever “owns” the pension arrangement should act as the official Scheme Administrator. You can appoint a third part to act as joint Scheme Administrator which can make filing returns with HMRC more efficient and there are plenty to choose from.
www.my-ssas.co.uk
So, down to the nitty gritty of why take out a SSAS.
There are trillions of pounds invested in UK pension funds, yes making money for pension scheme members, but also benefitting companies/institutions in which funds are invested. BP for example has millions, possibly billions of yours and my money invested with them. Pension funds like BP shares because they do pay really good dividends.
But if you have your own company, does it just not make sense to use your own pension and or that of your fellow directors/employees for the benefit of YOUR OWN COMPANY and not BP??
This is where a SSAS may well be the answer. Read on to find out:
1. Commercial property purchase. One of the accepted investments within a SSAS is commercial property and there are no ‘control’ rules here whatsoever. So, if you currently pay rent to a landlord for your business then you can use your SSAS money to buy that property. Instead of lining your landlord’s pocket you are lining your own by paying rent into your own pension scheme, tax free, which you can then take out when you retire as part of your tax-free cash. Brilliant.
A commercial property purchase can be used in so many different ways with a SSAS:
a. As above, buy your property from a landlord
b. If you own the property yourself then the SSAS can buy the property from you releasing capital for the business and keeping the asset in your ‘ownership’
c. An area many are looking at now is buying commercial property that has the potential for change of use to residential. This must be seen as an ‘investment’ opportunity as pension schemes or any scheme including SSAS, are not allowed to ‘trade’, they can only invest. So provided any commercial property purchased and conversion is seen as an investment opportunity that is fine and will not infringe on HMRC rules. Where great care must be taken here is that no pension fund can hold residential property so the property must be sold before any formal change of use is implemented.
d. It is even possible to leverage up your SSAS fund by 50%. So, if your SSAS fund stands at £200k, it is possible to take out a SSAS mortgage for a further £100k enabling you to buy a commercial property to the value of £300k.
2. You can use the SSAS to buy shares in your own company, even 100% of your company provided it is not more than 5% of the SSAS funds (and other HMRC restrictions apply). If you have a small company valued at, say £50,000 then if your SSAS has a value of £1m you could buy the whole company with your SSAS. Remember it is the value of the SSAS. So, you could have 4 owners all putting £250k into the SSAS to arrive at the £1m value. This is just an example to show what can be done. Great care must be taken to ensure that the SSAS does not inadvertently indirectly own/hold taxable property which could potentially create a massive tax liability. www.my-ssas.co.uk
3. If you are lucky enough to be making good profits from your business, then you really should be looking to max out on what you can put into your SSAS. The tax benefits of putting profits into SSAS compared to the tax implications of taking salary and/or bonuses are quite staggering and the potential to save thousand in tax.
4. The tax benefits available through a SSAS are many and if all are not being utilised then the only institution who benefit from this is the government /HMRC. After all it is every Englishman’s duty to pay as little tax as possible!
5. And the loan back facility of 50% of the SSAS fund can transform a business and this is where expert SSAS help really can make the difference between SURVIVE OR THRIVE.
www.my-ssas.co.uk
This is just scratching the surface of what is possible through a SSAS. The important aspect to consider is that having a SSAS gives you control over where your pension fund is invested. It affords the potential to use the assets you have built up over a number of years for YOUR benefit.
With everything that has happened over the last few years: Brexit, Covid, War, Inflation and now possibly global food shortages, most businesses need all they help they can get. The difference between survival and ultimate success could be the use of your pension and those of fellow owners/employees to really make a difference so that your business not only survives but thrives.
www.my-ssas.co.uk
There is one area I touched on earlier which has nothing to do with satanic rights, cults or human offerings. The more modern ‘nanny’ culture has seen a new term derive from an old one. The new term is called Salary Exchange; the old and traditional term is Salary Sacrifice. But the term Sacrifice is not cuddly enough these days so Salary Exchange it is.
But using Salary Exchange along with a SSAS is just genius and again should be used by every business owner in the UK who employs less than 10 employees. Yes, there are exceptions but there are exceptions for everything in life.
So, what is Salary Exchange and how can it work in a SSAS??
Again, it is best to use real numbers and show the workings for one individual:
Small Co Ltd employs five staff one of whom is John their technical officer on a salary of £80k.
The directors of Small Co Ltd set up a SSAS and John comes to them and says that he wants to put £800 a month into the new SSAS. Now the magic starts and here it is:
First thoughts are probably if he wants to put in £800 a month or £9,600 a year then this will just come out his salary. But, and it is a very big BUT, if you use Salary Exchange this is what can happen (using annual figures):
By using Salary Exchange John gives up (sacrifices!!) not £9,600 but £17,000 of his salary down to £63,000.
By doing this, his actual take home pay will reduce from £54,610.13 to £44,962.63, a reduction of £9,647.40 a year or £803.95 a month.
So, by reducing his salary by £17,000, because of savings in tax and NI his take home pay will only go down by £800 a month: the amount he wanted to pay.
But there is a cherry on top.
This reduction in salary means that the employers NIC has reduced from £10,670.45 down to £8,111.95 a saving of £2,558.50. The employer can choose to keep this saving, or they can choose to pay it on top of the £17,000 sacrificed salary taking John’s pension contribution to £19,558.44.
So, by using Salary Exchange, at no cost to anyone other than the government John is spending £804 a month on his pension. What is being paid into his SSAS is not £804 but £1,629.87, doubling his fund instantly!!
If we look at the annual figures, at no cost to employer or employee:
John will pay out his own money
£9,647.40 a year into his pension. That is the out-of-pocket cost.
The Government/HMRC will actually pay more!
£9,911.00
Making a total pension contribution / fund of
£19,558.44
Do this for five employees that is almost £100k going into the SSAS a year: half of which is coming from the tax man / HMRC !
Then you can use this £100k for the benefit of the business as described above. Its magic really and largely funded by HMRC.
www.my-ssas.co.uk
Picture this:
Newco Limited
employs five senior managers all earning £190k p.a. and
all of which choose to sacrifice £40k of their salary (and using Carry Forward could pay more).
Using Salary Sacrifice/exchange the ‘cost’ to each director will be £21,328.94
But each one will have £46,020.00 paid into their SSAS. That is a total of £230,100.00
Newco can then take a loan from the SSAS of £115,050.00 and will have paid nothing to be able to do that or
Can leverage this up to buy commercial property to the value of almost £350k.
And
A) Will have cost Newco nothing, nada, not one red cent
B) The directors will have made 116% (£24,691.06) on their pension contributions in one year ignoring any investment returns on the fund.
www.my-ssas.co.uk
Why is every small company in the UK not doing this?
Beats me but every one of them should. The furlough and bounce back schemes may have finished but there are still plenty of other ways you can get help from the government/HMRC it is just knowing how.
Steve Hunt ACII, CertPFS, DipPFS, MLIBF, CeMAP, CeRER,
Chartered Insurance Risk Manager
