Self Employed / Tax / Pension

Colincbayley

fengirl wrote: »

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

Correct, Self-Employed and loving it!

fengirl_2

If you are self employed, then you don't get tax relief at source on your pension payments and you can pay premiums of up to 100% of your income.

Colincbayley

fengirl wrote: »

If you are self employed, then you don't get tax relief at source on your pension payments and you can pay premiums of up to 100% of your income.

Excellent, so if I understand correctly. I don't pay the tax and don't claim it back, and if I intend to do the same the following year ( Pressuming I am in a position to ) then no POA?
Is that about the gist of it?

Also, ( as the wife has just nudged me on this point ) What about N.I Class 4 contributions in this situation? Any ideas?

BoGoF

I'm afraid some of the replies may be getting your hopes up. There was a time when a self-employed persons contributions to a personal pension scheme were treated differently to an employed person contributions. My understanding is that the rules were alligned a few years back so that all contributions to a personal pension scheme were given basic rate relief at source so as a previous poster said all you would be doing is eliminating higher rate liability. Only if you hold an old style Retirement Annuity Contract would you achieve your aims.

Either way, your contributions would have no effect on any Class 4 NIC due

Colincbayley

BoGoF wrote: »

I'm afraid some of the replies may be getting your hopes up. There was a time when a self-employed persons contributions to a personal pension scheme were treated differently to an employed person contributions. My understanding is that the rules were alligned a few years back so that all contributions to a personal pension scheme were given basic rate relief at source so as a previous poster said all you would be doing is eliminating higher rate liability. Only if you hold an old style Retirement Annuity Contract would you achieve your aims.

Either way, your contributions would have no effect on any Class 4 NIC due

Now I am confused.

I have tapped the figures into the MSE tax calculator, with 100% pension contribution and that comes up with £0 for Class 4 Contributions?

BoGoF

Can you post a link to this calculator, I can only find one relevant to employees not self employed. Remember you get tax relief on your pension contributions not NIC relief.

You really need to find out from your pension provider if you are getting basic rate tax relief at source before making any decisions

Colincbayley

BoGoF wrote: »

Can you post a link to this calculator, I can only find one relevant to employees not self employed. Remember you get tax relief on your pension contributions not NIC relief.

You really need to find out from your pension provider if you are getting basic rate tax relief at source before making any decisions

Your right, the calculator was for PAYE.

I have the matter in the hands of my accountant and IFA, who are dealing with it for me. I am just trying to get ahead of the game and do my own research.
On the best of days I hate tax and pensions, so the two together are giving my asprins a headache.

Debt_Free_Chick

fengirl wrote: »

If you are self employed, then you don't get tax relief at source on your pension payments and you can pay premiums of up to 100% of your income.

Contributions to a personal pension are deemed to have been paid net of basic rate tax, whether you're employed or self employed.

So if you want to make a contribution of £50k, you deduct income tax at the basic rate and so you actually part with only £40k. The pension provider then adds the tax relief to your pension pot and claims it from HMRC.

If you're a higher rate tax payer, you put the contribution on your SA return, grossed up for the basic rate of income tax. So you put £50k on your tax return and get the extra tax relief (currently £10k, which is 20% of £50k) as an adjustment to the tax you pay via SA.

Colincbayley

Debt_Free_Chick wrote: »

Contributions to a personal pension are deemed to have been paid net of basic rate tax, whether you're employed or self employed.

So if you want to make a contribution of £50k, you deduct income tax at the basic rate and so you actually part with only £40k. The pension provider then adds the tax relief to your pension pot and claims it from HMRC.

If you're a higher rate tax payer, you put the contribution on your SA return, grossed up for the basic rate of income tax. So you put £50k on your tax return and get the extra tax relief (currently £10k, which is 20% of £50k) as an adjustment to the tax you pay via SA.

Sorry, I still don't have a clear picture of how this works.
Can someone putt it so a child can understand it please?

1) Do I pay my tax as normal via the SA system?
2) If I put 100% of my profits into a pension, do I have to a) pay class 4 N.I and b) make POA for the next year?

dunstonh

dont forget to claim working/childrens tax credits if you do this. Pension contributions reduce your income down and can increase the tax credits or bring you into the area where you can claim them. So, not only do you get the normal tax relief, you could also potentially get tax credits as well. The theoretical maximum is 72% if you get the maximum tax credits (as well as 40% relief).