Everything you need to know about contractor pensions

At Contractor Accountants Online we always recommend that our clients take full advantage of any available tax breaks and contractor pensions are a great way of doing just that.

As a contractor working through your own limited company, you are allowed to send part of your gross payment to a pension scheme. This will enable you to save on both personal and corporation tax as the funds grow into a tax-free pension fund.

If you have any questions about pensions or would like to find out more about our services, our qualified accountants are always on hand to help, call us on 020 7481 4743.

How to make pension contributions as a contractor

You can make contributions in a few different ways. Theoretically, you could invest up to 100% of your income into a pension scheme if you chose to do so. You are allowed to invest up to £50,000 per year direct from your limited company.

A common misconception is that you have to invest in pensions from your company bank account, this just isn’t the case’ you can invest from your personal account as well.

When making personal contributions you will be able to benefit from income tax at your highest marginal rate, meaning that for every £6 you contribute, the government will add an extra £4.

What if you are inside IR35?

If you are contracting inside of IR35 there are actually more benefits available to you if you decide to use a pension scheme. You’ll save the income tax that you would have normally paid out, but also the employers and employees national insurance contributions that you would have had to pay. With this in mind, your tax relief from a pension scheme could be as much as 45%!

Choosing the right pension provider

As with anything, when it comes to pensions there are a number of providers out there and you’ll be forgiven for getting confused as to which one is right for you.

A good thing to remember is that you may not always be a contractor, we can’t predict the future any better than you, so it is always worth searching for a pension scheme that has low set-up costs and allows you to adjust your contributions on a month by month basis.

Another key thing to consider is the reputation of each individual firm. Does the firm you are considering have the ability and financial strength to still be trading in 10 years time?

Pensions are long-term investments and that the value of your investment can rise and fall depending on numerous external factors. The economic downturn is a perfect example; even people with pensions in some of the largest firms saw their investments fall in value. Therefore it is key to understand that past performance doesn’t guarantee future performance when it comes to pensions.

Our £55 per month contractor accountancy service

We have a wealth of experience in helping contractors just like you get to grips with the complex world of tax and accountancy. Our affordable fixed-fee package is just £55 per month and we offer a full suite of services to meet you business and personal accountancy needs. As a client of Contractor Accountants Online you will receive:

  • Annual accounts submission
  • Management information
  • Corporation tax calculations and submissions
  • Monthly payroll and RTI returns
  • Quarterly VAT returns
  • Annual returns for Companies House
  • Personal tax return for the director
  • Manage your finances online with FreeAgent

We pride ourselves on providing the highest level of service possible, our accountants are fully qualified and will ensure that you will never miss a deadline.

If you have any questions about contracting or would like to find out more about our £55 per month service, call our expert accountants on 020 7481 4743.

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