IR35 and your pension. What production consultants working inside IR35 need to consider

IR35 is one of those topics that generates a significant amount of anxiety in broadcast and production, and a comparatively small amount of clear, practical information. Most of what gets written about it focuses on tax liability and employment status. Considerably less attention gets paid to what working inside IR35 means for pension planning - which, for experienced consultants in their 50s thinking about the longer term, is often a consequential area to understand.

A brief recap of how IR35 works in this context

For broadcast and production consultants working through a limited company, IR35 is the legislation that determines whether HMRC considers an engagement to be effectively employment, regardless of the contractual structure. Where a contract falls inside IR35, the income from that engagement is treated as employment income for tax purposes - National Insurance and income tax are deducted at source, typically by the fee-payer, before the money reaches the contractor.

Since April 2021, responsibility for determining IR35 status on engagements with medium and large organisations shifted to the engaging organisation rather than the contractor. For broadcast and production consultants working with broadcasters, larger production companies, and post-production facilities, this means that IR35 determinations are increasingly being made by the client rather than the consultant - and a significant number of those determinations have landed inside IR35.

This affects take-home pay. It also affects pension options in ways that are worth understanding at a general level.

What tends to change about pension contributions when working inside IR35

When a contract is inside IR35 and the income is treated as employment income, one of the tools commonly used for pension planning by limited company contractors works differently - the ability to make employer pension contributions directly from the company.

Under normal outside-IR35 circumstances, a limited company can make pension contributions on behalf of its director-employee. Those contributions are typically treated as a business expense, reducing the company's corporation tax liability. The money goes into the pension without passing through the director's personal income, which means it generally avoids both income tax and National Insurance. For consultants in their 50s with company reserves, this has historically been one of the more tax-efficient extraction routes available.

Inside IR35, the income from that engagement is processed through a deemed employment payment. The company receives the net amount after tax and NI deductions have been applied. The tax efficiency of the employer contribution route is affected on that income as a result, because the deemed employment payment has already been taxed at source.

This doesn't mean pension contributions become impossible in an inside-IR35 situation. It means the mechanics are different, and how those differences play out depends on individual circumstances - including whether the consultant has other outside-IR35 income, what other company reserves are available, and how the overall picture is structured.

Personal contributions and the annual allowance

Personal pension contributions from personal income remain available regardless of IR35 status, with tax relief applied at the marginal rate.

For inside-IR35 income that has been taxed as employment income, the consultant generally has pensionable earnings from that engagement. Basic rate tax relief is typically added automatically to personal contributions, with higher rate relief potentially claimable through self-assessment, depending on circumstances.

The annual allowance (currently £60,000 per year, or 100% of relevant UK earnings if lower) applies to total pension contributions from all sources in a tax year. For consultants with contributions coming from multiple sources, keeping an eye on the total across the tax year is a relevant consideration. The rules around the annual allowance are detailed, and individual circumstances vary.

For consultants with consistently high income levels, the tapered annual allowance is a separate area worth being aware of. Where adjusted income exceeds £260,000, the annual allowance reduces on a sliding scale. This is less commonly relevant in broadcast and production than in some other sectors, but it is part of the broader picture for higher earners.

The carry forward rules

Carry forward is a mechanism that allows unused annual allowance from the three previous tax years to be added to the current year's allowance, subject to certain conditions being met.

For broadcast and production consultants whose income has been irregular (strong years followed by quieter ones, or periods where pension contributions were lower than usual) there may be unused allowance available from previous years. In some circumstances this can allow larger pension contributions in a single year than the standard annual allowance would normally permit.

This tends to be a relevant area for consultants in the later stages of their career who are thinking about how the pension picture looks overall, or for those considering how company reserves might be structured going forward.

Auto-enrolment and IR35

Where a consultant is working inside IR35 and income is being treated as deemed employment, there can be auto-enrolment considerations depending on how the engagement is structured - whether through an umbrella company, directly through the limited company under a PAYE arrangement, or another route.

The details of how auto-enrolment applies vary significantly depending on the structure of the engagement. Where contributions are being made into a default workplace scheme (particularly one selected by an umbrella company) those contributions may or may not connect neatly with the rest of the consultant's pension arrangements. How they interact with any existing SIPP or self-invested arrangements is something that forms part of the broader picture.

The broader context

IR35 changes the tax efficiency of limited company working in ways that are well documented. The pension dimension is a specific aspect of that which tends to receive less attention than the immediate tax and take-home pay implications.

For experienced broadcast and production consultants in their 50s, the interaction between IR35 status and pension planning sits within a wider set of questions about what has been built, how it is structured, and what the picture looks like overall. Individual circumstances vary considerably - the right approach for one consultant depends on factors including their current IR35 position, what other income and assets are in the picture, and what the forward plan looks like.

The general landscape described in this article is a starting point for understanding the relevant considerations. The specifics, as with most areas of financial planning, depend on the individual situation.

This article is for general information only and does not constitute regulated financial advice. IR35 status, pension planning, and tax treatment are complex areas that depend heavily on individual circumstances and are subject to change. Anyone considering decisions in these areas may find it helpful to speak with a qualified independent financial adviser and a specialist contractor accountant.