Day: October 24, 2018

{ Umbrella Company Pension Schemes — What You Need to Know |} Pension schemes help employees put money aside for retirement straight from their own commission. The issue for self help professionals is thatthey need to handle themselves,either by setting up a pension scheme or saving cash from their earnings. Fortunately,umbrella firms class contractors as employees,providing them all of the advantages of employment. That includes a pension scheme,which requires contribution from the umbrella company too. Let’s take a closer look in the statutory pension schemes available through umbrella companies. {In 2012,the UK Government decided that workers weren’t saving enough for their retirement. |} People were relying on the State Pension,which had not received adequate funding to coincide with the ongoing increase in life expectancy and an ageing population. {To fight this,they introduced automatic enrolment. |} The new system,rolled outfrom 2012 to 2018,requires employers to automatically enrol eligible employees on a workplace pension scheme. Employers will also be responsible for deducting contributions in their pre-tax income and creating a minimal statutory contribution to the employee’s savings. In October 2012,this minimal contribution has been set to 1 percent for employees,which was matched by employers,increasing in 2018: October 2012 to 5th April 2018: employers 1%,employees 1 percent 6th April 2018 into 5th April 2019: employers 2%,employees 3 percent 6th April 2019 onwards: employers 3%,employees 5% But for anybody that does not want to donate to a pension once you’re registered you can still opt out. Umbrella company pension scheme {Working through an umbrella company,contractors are classed as an employee. |} That means,yes,you are automatically registered on the umbrella company’s pension scheme provided that you meet the following criteria: Your job is primarily UK-based You earn more than #10,000 per year You are between 22 and the state pension age. Until 5th April 2019,3% of your pre-tax wages will go into a pension fund,together with the umbrella company contributing a further 2%. By 6th April 2019,5% of your pre-tax wages will probably enter precisely the exact same pension fund,together with your umbrella company contributing a further 3%. The Advantages of an umbrella company retirement Some contractors can worry that this will eat away in their salary. Don’t. {Pension contributions are made before your wages are taxed. |} That means anything which goes from your wage in your pension fund is tax-free instead of being taxed at 20% or even 40 percent. So,instead of receiving 60 percent of your earnings,you receive 100 percent using a pension fund. Let’s say you earn more than46,351 per year,which sets you in the higher rate band of income tax. {Anything you earn beyond that #46,351 per year (roughly #3,863 a month) is taxed at a rate of 40%. |} You receive just #60 for every #100 of income. Why not place the full #100 straight into the retirement fund rather? That’s why lots of people,particularly people in the higher rate band of income tax,choose to place more than the minimal in their pension fund. And this is entirely possible. Contractors can contribute upto #40,000 for their pension scheme each year,comprising tax-free income and company contributions. At this time,there’s a life allowance of #1,030,000 which can be donated before incurring any tax. With your funds {Together with the increased earnings of contracting,it is typical for contractors to retire early. |} As an alternative,you might only wish to get some of the cash out for a vacation,new car or home improvement. The fantastic news is: you do not need to wait till the state pension age to access the pension funds you have built up through your umbrella company pension. Once you’re 55 or more,you can access up to 25% of your pension pot as a tax-free lump sum. Anything beyond the 25% will be taxed as an addition to the rest of your earnings that tax season — 20% over #11,850,40 percent over #46,351 or #45% over #150,000,as things currently stand. That’s why many people choose to take their pension as regular income once they have retired,to minimise the quantity of tax paid. What about limited companies? {Contractors who function as a limited company can still benefit from the tax relief of a pension scheme. |} However,as with the majority of things relating to limited companies,this requires much more effort on their own part. Firstlythey must get the right balance between wages and dividend payments to boost the limit on their pension contributions. Because employer contributions,such as pensions,count as a business expense,they are subject to tax relief. So,when you donate to your pension scheme,as a manager,the company can save money in corporation tax. However, this has additional complications because it needs to be fully compliant as an allowable expense. Any other employees,for example,ought to be given similar packages to prove to HMRC which it is a real business expense. On top of all that,using a limited company pension scheme means setting up and paying to the pension fund yourself. Along with all the other administrative work to get limited company owners,it is definitely worth seeking assistance and advice from a trustworthy accountant. Get the right assistance Whether you are looking to compare umbrella firms or find the appropriate accountant,you can make the right decision with -. Our online comparison tool lets you evaluate multiple companies in a couple of minutes. It could not be easier to take the hassle out of contracting. Contact us today to learn more.