By: Freelance Financials: A taxing future for contractors?

Freelance Financials: A taxing future for contractors? — Tue, 10 Nov 2009 14:04:41 +0000

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By: FreelanceAdvisor

FreelanceAdvisor — Fri, 06 Nov 2009 22:47:30 +0000

Brilliant advice Paul. Thanks for sharing. Sticking cash in a pension is such a very smart move for a contractor/freelancer with a Ltd Company. Two-thumbs up

By: paulcleworth

paulcleworth — Fri, 06 Nov 2009 22:24:52 +0000

Hi Sam,

In response to your queries about pensions above I can say this:

Running your own limited company as a contractor has its benefits and it has draw backs. One of the draw-backs is that there is no pension scheme, unless you provide one for yourself. As a director of a limited company, you are both the employer and the employee. Almost always, it is more tax efficient for the company to pay contributions into a pension (gross payments), which are normally classed as an allowable expense to the business.

Paying into a pension through your company is one of the main ways you can extract monies from your business tax efficiently. You are right in saying that putting money into a pension means you cannot access these monies until later on in life (access to pension benefits is available from age 50 now and from 6th April 2010, it moves to age 55) but to be frank, that is the whole point - you are saving up for the future; for your retirement years and although it is a disadvantage that the monies are not instantly accessible (if below age 50), like they would be in a cash or equity ISA for example, there are the initial tax savings by investing into the pension in the first place.

As the employer and the employee, you avoid paying national insurance (saving up to 23.8% combined currently) as well as income tax by investing into a pension. The funds grow free from income tax and capital gains tax all the years until you access the monies after age 50 or 55 and in the mean time you have benefited from reducing your companies corporation tax (since you are reducing your net profits by paying into a pension through the business).

When you do access the beneifts (or what is called crystalise your benefits) by taking an annuity or using income draw-down or phased retirement, you can get 25% of your pension pot tax free and only pay tax on the income from the other 75%.

I am more than happy to discuss inidividual circumstances with you should you email me your details.

Hope this helps.

Kind regards,

Paul Cleworth BA (Hons) Cert PFS
Financial Planner
Director
Wealth Matters

By: Sam

Sam — Thu, 05 Nov 2009 04:54:25 +0000

Should I get my Limited Company to invest its spare money?

Your suggesting to invest in a personal pension concerns me?
What if we need to use the money? We can't withdraw this money until we can draw a pension. You also mention you minimise tax when you withdraw. How's that possible then?

Sam

Comments on: Freelance Financials: A taxing future for contractors?

By: Freelance Financials: A taxing future for contractors?

By: FreelanceAdvisor

By: paulcleworth

By: Sam