Stakeholder contributions from Sole Trader and the Tax Man

Eagle15

I've just started doing part-time work as a Sole Trader. I'm also in the lucky position (well, this year anyway) where I can put the £2808 into my Stakeholder Pension from another source of taxable income and get the government to top that up to the £3600 tax relief limit.
The question is, can I put some of the Sole Trader earnings into the Stakeholder as an EmployeR contribution i.e. not get tax relief added by the government; and declare those earnings as a tax deductable expense in the Sole Trader business?

Many thanks for your advice in advance?

shaunrc

Hi Eagle

You could pay in from your business but there are no gains from so doing.Essentially all money would be treated by the taxman either as yours or as a payment to you.

I work as an IFA and specialise in this type of thing and partnerships are in a similar position to you. The real gains in terms of tax and national insurance come from having a limited company. If you form a ltd company then talk to an IFA who specialises in this area.

Please note that this is help not advice as FSA rules are strict on regulated people as to what constitutes advice........

dunstonh

I've just started doing part-time work as a Sole Trader. I'm also in the lucky position (well, this year anyway) where I can put the £2808 into my Stakeholder Pension from another source of taxable income and get the government to top that up to the £3600 tax relief limit.

The £3600 limit only applies to those without an income greater than £3600. i.e. unemployed, retired or children. If you have an income greater than £3600 a year, then you can pay more than that into a stakeholder/personal pension or SIPP.

The question is, can I put some of the Sole Trader earnings into the Stakeholder as an EmployeR contribution i.e. not get tax relief added by the government; and declare those earnings as a tax deductable expense in the Sole Trader business?

You only dont get tax relief when execeed your earnings (or the annual contribution limit). Pension contribtuions, as shaunrc says, are not a business expense for self employed.

Eagle15

Thanks for the info shaunrc. Not what I was hoping to hear but......

dunstonh wrote: »

The £3600 limit only applies to those without an income greater than £3600. i.e. unemployed, retired or children. If you have an income greater than £3600 a year, then you can pay more than that into a stakeholder/personal pension or SIPP.

You only dont get tax relief when execeed your earnings (or the annual contribution limit). Pension contribtuions, as shaunrc says, are not a business expense for self employed.

dunstonh - My other income is from a company pension. If, say my total income is £20k (15 from pension and 5 from Sole Trader work) and I pay £5k into my Stakeholder, will I get tax relief on the whole £5k or just the first £2808 of my contribution?

dunstonh

The income has to be earned income. Not investment or pension income or interest.

If your sole trader income was £5k, then you can pay £5k into a pension and get tax relief on the whole amount.

Eagle15

dunstonh - Thank you. That's good news. It's just as good as being able to make the Stakeholder contribution an allowable tax deduction on the Sole Trader accounts.

Debt_Free_Chick

dunstonh wrote: »

The income has to be earned income. Not investment or pension income or interest.

If your sole trader income was £5k, then you can pay £5k into a pension and get tax relief on the whole amount.

Dunstonh - under the post A-day rules, contributions are no longer restricted by reference to earnings, are they? So he could contribute up to the annual allowance (£215k). But I think that tax relief is restricted, so that he can only offset the tax payable on the earned income against the contributions. Tax on the pension income would be still be payable.

I think. This was certainly the intention in the Green Paper - that there was no limit on contributions, just a limit on the tax relief. So you could only claim "relief" that was due i.e. not claim a refund for any relief that arose from an excessively large contribution.

Please don't make me read the Finance Act - it makes my head spin

jamesd

Debt_Free_Chick, you're correct, though since this poster was interested in doing it to get the tax relief it's moot here.

Eagle15

Thank you all for your advise. Things are a lot clearer now.