Self Employed / Tax / Pension

Colincbayley

Pie in the sky question.

Say, at the end of the tax year my accounts are showing £50K profits ( would be nice ) if I stick 100% of this into a personal pension plan would I then still have to make a payment on account of tax for the following year, bearing in mind the following year I would also intend to place 100% of pre-tax profit into a pension?

fengirl_2

You can apply to reduce your POA for any reason.

Colincbayley

fengirl wrote: »

You can apply to reduce your POA for any reason.

Good stuff, thanks.

So any idea how this all works in practice?

Using the example of £50K gross profit, do I then pay the tax due on my SA and the pension company claims it back, or do I just not pay it?
My thought behind this question, is that if I have to pay the tax and then the pension claims it back, then I might as well make the payment of account after all ! ( If you see what I mean )

fengirl_2

No, you claim for the pension premium on your SA and this automatically reduces your tax liability to nil.

Colincbayley

fengirl wrote: »

No, you claim for the pension premium on your SA and this automatically reduces your tax liability to nil.

Excellent, just the answer I was looking for.

Thanks Fengirl.
:T

zygurat789

The payment of the pension premium should be in the same tax year as your self employed accounts end for you to claim it on your tax return and I assume the pension premium will be 100% of taxable/net (not gross) profit.
If you are not able to make the payment until after the end of the tax year then it is still possible to reduce the payments on account by completing the relevant boxes on the tax return (see your other dpost in pensions)

Rolo_Tomasi

Just a couple of points. First are you allowed to contribute 100% of your earnings into a pension? Secondly, basic rate tax relief for pensions is usually given at source meaning that to contribute £50k you would only pay in £40k with the government topping it up. If your earnings were £50k then the only difference to the tax you pay would be that none of it would be taxed at higher rate. This would obviously reduce your tax liability but not to nil and there would still be POAs to make.

Colincbayley

Rolo_Tomasi wrote: »

Just a couple of points. First are you allowed to contribute 100% of your earnings into a pension? Secondly, basic rate tax relief for pensions is usually given at source meaning that to contribute £50k you would only pay in £40k with the government topping it up. If your earnings were £50k then the only difference to the tax you pay would be that none of it would be taxed at higher rate. This would obviously reduce your tax liability but not to nil and there would still be POAs to make.

OK, understood.

So how should I go about doing this then.
I want to limit the amount of tax I pay and any future POA's.

I don't need the income, so can afford to pay 100% of earnings into a pension, but if I do pay 100% of earnings in, then I would be left with little money for the POA! ( if you see what I mean )

Or is there another option I have missed to reduce my tax liability?

Debt_Free_Chick

Colincbayley wrote: »

I don't need the income, so can afford to pay 100% of earnings into a pension

Is your total pre-tax income more than £130k?

fengirl_2

I assumed you were self employed - is this the case?

Colincbayley

Debt_Free_Chick wrote: »

Is your total pre-tax income more than £130k?

Pre-tax income is less than £130K, I would say in the region of £100K