Can Umbrella Businesses Have a Pension Scheme?


{ Umbrella Company Pension Schemes — What You Want to Know |} Pension schemes help employees put money aside for retirement directly from their wage. The problem for self-employed professionals is thatthey need to manage thisthemselves,either by setting up a retirement strategy or saving money from their earnings. Fortunately,umbrella companies course contractors as employees,giving them all of the advantages of employment. Including a retirement scheme,which nowrequires contribution from the umbrella company also. Let’s take a better look at the statutory retirement strategies available through umbrella companies. {In 2012,the UK Government determined that employees were not saving enough for their retirement. |} Individuals were relying on the State Pension,that had not received adequate funding to coincide with the continuing rise in life expectancy and an ageing population. {To fight this,they introduced automatic enrolment. |} The new system,rolled from 2012 to 2018,requires employers to automatically enroll qualified employees onto a workplace retirement strategy. Employers will also be responsible for deducting donations in their pre-tax income and making a minimum statutory contribution to the employee’s savings. In October 2012,this minimum donation has been set to 1 percent for employees,that was matched by employers,rising in 2018: October 2012 to 5th April 2018: employers 1 percent,employees 1 percent 6th April 2018 to 5th April 2019: employers 2%,employees 3% 6th April 2019 onwards: employers 3 percent,employees 5% However for anybody that does not need to contribute to a retirement once you’re registered it is still possible to opt out. {Working through an umbrella company,contractors are classed as an employee. |} That means,yes,you are automatically registered onto the umbrella company’s pension scheme provided that you fulfill the following criteria: Your job is primarily UK-based You earn more than #10,000 annually You’re between 22 and the state pension age. Until 5th April 2019,3 percent of your pre-tax salary will go directlyinto a retirement fund,together with the umbrella company contributing a further 2%. From 6th April 2019,5 percent of your pre-tax salary will enter precisely the exact same pension fund,together with your umbrella company contributing a further 3%. The benefits of an umbrella company pension Some contractors can worry that this may eat away at their salary. Don’t. {Pension contributions are made before your wages are taxed. |} That means anything which goes from your wage into your pension fund is tax-free rather than being taxed at 20 percent or even 40%. So,rather than getting 60 percent of your earnings,you receive 100 percent via a pension fund. Let’s say you earn over #46,351 per year,which puts you at the higher rate band of income tax. {Anything you earn beyond that #46,351 per year (approximately #3,863 per month) is taxed at a rate of 40%. |} You receive just #60 for every #100 of revenue. Why don’t you place the full #100 straight into the pension fund instead? That is the reason why lots of individuals,especially those in the higher rate band of income tax,opt to place more than the minimum into their retirement fund. And this is completely possible. Contractors can contribute upto #40,000 for their retirement scheme each year,comprising tax-free income and employer contributions. At this time,there’s a life allowance of #1,030,000 that can be donated before incurring any tax. With your budget {Together with the increased earnings of contracting,it is common for contractors to retire early. |} As an alternative,you may simply wish to get some of the money out for a holiday,new car or home improvement. The fantastic news is: you don’t have to wait till the state retirement age to get the pension funds you have built up through your umbrella company retirement. Once you’re 55 or more,you are able to get up to 25% of your pension pot as a tax-free lump sum. Anything beyond the 25% will be taxed as an accession to the remainder of your earnings that tax season — either20% over #11,850,40% over #46,351 or #45% over #150,000,as things currently stand. That is why most people decide to take their retirement as regular income once they’ve retired,to minimise the amount of tax paid. {Contractors who function as a limited company can still benefit from the tax relief of a retirement scheme. |} However,as with most things relating to limited companies,this needs much more effort on their own part. Firstly,they must get the ideal balance between salary and dividend payments to boost the limit on their retirement contributions. Because employer contributions,such as pensions,count as a business cost,they are subject to tax relief. Thus,when you contribute to your retirement strategy,as a director,the company can save money in corporation tax. However, this has added complications since it ought to be fully compliant as an allowable cost. Any other employees,for example,should be given similar packages to prove to HMRC which it is a genuine business investment. In addition to all that,using a limited company pension scheme means setting up and paying to the retirement fund yourself. Along with all the other administrative work for limited company owners,it is definitely worth seeking advice and assistance from a trustworthy accountant. Get the right help Whether you are searching to compare umbrella companies or find the right accountant,you are able to make the ideal choice with Our online comparison tool allows you evaluate multiple companies in a couple of minutes. It could not be much easier to take the hassle out of contracting. Contact us today to learn more.

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