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The Team at Laudale

Richard Hepburn
Operations Manager
Gorilla Accounting

INTERIM INSIGHT: Pension Planning for Interims

The benefits of an interim career are obvious and plentiful but it’s also important to consider the more practical side of business including saving and investing for your future, a pension is usually a great way to build up a pot that can provide an income for when you retire, as a permanent employee your employer is likely to provide a scheme for this, but now you are self-employed or working through your own limited company it’s up to you to start making contributions.

Richard Hepburn, Operations Manager at Gorilla Accounting shares his advice:

There are two main ways of making pension contributions, either privately or through your limited company.

Company Pension Contributions

  • The pension should be in the company name and paid directly from the company bank account.
  • The contributions are not grossed up by the provider and are normally eligible for Corporation Tax relief.
  • As with any business expenses, HMRC advise that they should be “wholly and exclusively” for business.

Personal Pension Contributions

  • Made from personal funds, the pension provider claims tax relief and adds 20% to the contribution. For example, a personal pension contribution of £800 would be grossed up to £1000.
  • The gross personal contributions extend the tax basic rate bands, meaning that our clients could declare more dividends at 7.5%, rather than at 32.5%.
  • The contributions can also reduce your net income when calculating income for the Child Benefit charge and if a client has exceeded a total income of £100,000 and started to lose their personal allowance.
  • You can only make personal contributions up to the level of your salary. A client taking a salary of £8164 can, therefore, contribute £6531, which will be grossed up to £8164.
  • If you don’t have a salary, you can still make contributions of £2880, which are grossed up to £3600.

Annual Allowance

  • The annual allowance for 2018/19 is £40,000 and this is the total that is contributed towards your pension for the year. This covers all pension schemes, it is not an allowance per scheme.
  • There is now a tapered annual allowance for high earners. For every £2 of income above £150,000, £1 of the annual allowance is lost, but it is capped at £10,000. The maximum reduction is therefore £30,000, meaning anyone earning over £210,000 will have their annual allowance capped at £10,000.
  • For anyone that exceeds the annual allowance, the excess is treated as income and taxed in the relevant band.

Lifetime Allowance

  • The lifetime allowance is currently £1.03m. Further tax may be due if your pension pot exceeds the lifetime allowance.
  • If the allowance is exceeded, there are significant tax charges on the excess. The charge can be as high as 55% depending on how the pension is paid.

It’s clear there are a number of considerations to consider if you are looking to invest in your future, Gorilla Accounting is a specialist accountancy firm for self-employed professionals. For an informal chat get in touch today 0330 024 0406 or email info@gorillaaccounting.com. Alternatively, you can visit the website here.

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