If you’ve not already set up one of those contractor pensions or don’t currently make full use of the allowances available, you could be paying substantial amounts of tax unnecessarily.
Contractor Pensions are big news post MSC and income sharing , whether inside or outside of IR35. That’s becaause they represent one of the few remaining tax breaks available to contractors.
You can invest money personally from your own funds or direct from your company bank account.
Caught by IR35
If caught by IR35, you save not only the income tax that would ordinarily be payable but you also avoid the employers and employees national insurance contributions. The amount of tax relief can be as much as 59%. That means that for each £100 invested you pay £41 and the tax man pays the rest.
For those outside of IR35 you could pay personally into contractor pensions. However, many prefer to load the company up with a legitimate business expense.
Contractor Pensions Amount
Contractors can personally place up to 100% of their salary into contractor pensions.
In addition the rules regarding funding contractor pensions schemes direct from your limited company could allow a massive investment of up to £50k pa irrespective of salary.
Key Advantages for Contractors
Since 2006, the day rules have made pensions much simpler for most investors. Now there are a number of key advantages for Contractors:
o Many contractors have greater flexibility in the size and timing of their contributions.
oIn many cases, there is no need to make contribution checks.
o There is greater investment flexibility i.e. collective investments into property)
o Up to a 25% Tax Free Cash lump sum is available
o Contractors can take smaller pension funds up to £18k as a one-off lump sum as opposed to having to draw a regular income (known as triviality rules)
o Flexible options at retirement including the freedom to defer purchasing an annuity – indefinitely if required.
o No need to ‘secure’ benefits with a rigid annuity by age 75
o Full concurrency i.e. being able to pay into any array of plans you wish
It does seem fair to state that pension investment now allows far more freedom than in the past. There’s greater possibilities for tax savings. This enables contractors to build a better nest egg towards a prosperous retirement.
As independent advisers we are pleased to confirm we can advise you on and arrange a suitable product from across the whole market and from all of their product range.
If you would like to discuss your contractor pensions options further please complete our pension finder below.