Pension as Sole Trader vs Ltd. Co.

LHZ

Hello all

Some fantastic info from you guys in the recent thread regarding setting up a pension as a Limited Company. Rather than hi-jack that thread I thought I'd start another to address my particular question.

I'm 42 years old with no pension provision. I am currently a Sole Trader but my accountant is suggesting I go limited for tax purposes. I'm only really just on the cusp of reducing my tax liability by going Limited vs staying Sole Trader but it's been suggested that paying a pension via a limited company is very tax efficient so I am weighing up the benefits of going Limited.

So the question is, how much more beneficial is it to pay a pension via a Limited Company vs. as a Sole Trader? Is that in itself worth becoming a Limited Company for?

Many thanks!

greenglide

You pay no personal tax on the contributions (no income tax, no dividend tax, no National Insurance) and the payments by there is no corporation tax paid by the company.

Very tax efficient.

I wouldnt set up a limited company just for this purpose but it does neet to be taken into account.

Fermion

One of the key factors will be your total revenue and whether this exceeds the VAT threshold of £85,000. If as a Ltd Company you have to register for VAT then your client will see an increase in their costs, but as a limited Co you can register for Flat Rate VAT which will bring some benefits and probably cover your account fees. (e.g you charge clients VAT at 20% but only pay HMRC at a reduced flat rate of circa 14.5% - dependent on particular industry)

LHZ

Thanks for the replies so far.

Fermion wrote: »

One of the key factors will be your total revenue and whether this exceeds the VAT threshold of £85,000.

My total total revenue will not exceed VAT threshold (unless I get the million-to-one break and then things would be very different in that situation anyway). I am a musician and I am currently a lower rate tax payer. I do not, and most likely never will, employ any staff directly.

If it helps, I'm single and have £42k mortgage and about £30k cash in the higher paying current accounts. My monthly disposable income varies but I earn much more than I spend. Some months I have £2k + disposable income so could put at least £1,000 into a pension without a problem.

The one big plus for staying as a Sole Trader is that I can legitimately claim 90% of all car expenses so a brand new car on lease would be tax efficient under Sole Trader status. It's a ridiculous luxury though and I have a perfectly good vehicle at the moment. Much more sensible to put that money into a pension.

TheTracker

Fermion wrote: »

One of the key factors will be your total revenue and whether this exceeds the VAT threshold of £85,000. If as a Ltd Company you have to register for VAT then your client will see an increase in their costs, but as a limited Co you can register for Flat Rate VAT which will bring some benefits and probably cover your account fees. (e.g you charge clients VAT at 20% but only pay HMRC at a reduced flat rate of circa 14.5% - dependent on particular industry)

This is no longer true for most, nearly all, micro businesses in service industries. Since April Limited Cost Trader VAT classification has all but obliterated any advantage to registering for the flat rate scheme.

Fermion

This is no longer true for most, nearly all, micro businesses in service industries. Since April Limited Cost Trader VAT classification has all but obliterated any advantage to registering for the flat rate scheme

Thanks - one of the dangers of being retired for 20 months and not fully up to date.

For info, there are some very good (and up to date) resources on starting up and managing a business on the Accountant Bernard Rogers web site http://www.bernard-rogers.co.uk/resources