Contractor Pensions
Cut company and personal taxes
Tax planning avenues are increasingly being blocked by a government ever more keen to maximise revenues. Against this backdrop, traditional pension planning has recently been given a new lease of life as a means to reduce both personal and company taxation. By exploiting tax breaks today, the net result can be financial security in the future.
Benefits for you instead of the taxman
The hard truth is that, without the benefit of a large company retirement package and with state provision woefully poor, contractors will be reliant on whatever nest egg they can build up for themselves. The good news is that there are very compelling tax planning opportunities now associated with pension investment which could enable you to significantly reduce the proportion of corporate and personal income that goes to HMRC.
Personal Contributions – contractors can now personally invest (i.e. direct from your private bank account) up to 100% of salary into a pension and still benefit from income tax relief at your highest marginal rate (i.e. taxman could be paying £4 for every £6 that you invest).
Company Contributions – in addition business owners may choose to draw a tax efficiently low salary (to reduce national insurance) which will limit the scope for personal investment but this need not limit your ability to reduce company and personal tax bills by making an employer pension contribution.
Thanks to 'pensions simplification', you now have massively increased scope to invest by getting your company to fund the scheme on your behalf. 'Employer' contributions can be as much as £255k pa and these investments of company money into your own private pension pot avoid all income tax, national insurance and benefit in kind deductions. Pensions therefore represent a very tax efficient method of transferring money from company into personal hands and your tax bill could potentially be reduced to nothing.
Pensions for a new age
Subject to minimum age (currently 55), contractors can invest into a pension, immediately receive very attractive rates of tax relief and then withdraw 25% of the fund tax free whilst not even formally retiring.
Gone are the days of costly, inflexible pension plans. Today’s pensions can be set up fee free, with low running cost and complete flexibility to alter your investment level literally on a month by month basis as your budget dictates.
The opportunities for contractors to exploit the tax breaks available from pensions planning are enormous and the retirement fund that will be built up for future benefits will represent a very worthwhile lasting legacy of your time as a freelancer.
Next step?
We appreciate that many CMEASY clients will need advice on the subject of pensions and we can recommend you to the specialist Independent Financial Advisers at Contractor Financials to maximise the potential tax breaks.
To discuss pension planning further with one of the advisers at Contractor Financials, please call Andrew Gains on 0845 062 8888 or email cmeasyclients@contractorfinancials.com
Financial advice is given by Contractor Financials, which is a trading name of Contractor Financials Ltd and is regulated and authorised by the Financial Services Authority.