Can a pension / ISA be claimed as an expense?

keljnr

I'm a sole-trader, and currently have no savings for retirement. Can a pension be used as an expense?

For example, if I earn 20k a year and put 2k into a pension/ISA, can I put 18k as earnings and 2k as an expense... Saving on my tax bill, whilst investing in my future?

Many thanks.

dunstonh

I'm a sole-trader, and currently have no savings for retirement. Can a pension be used as an expense?

Not for a sole trader.  It can for a limited company director (pension only).  

However, your taxation is in line with your company.  So, a pension contribution gains tax relief and does in effect reduce your taxation.   Whilst you may have a business banking account and trading name, you and your company income are linked.   Unlike a limited company where they are separate.

For example, if I earn 20k a year and put 2k into a pension/ISA, can I put 18k as earnings and 2k as an expense... Saving on my tax bill, whilst investing in my future?

ISAs have nothing to do with business and are never an expense.

In your example, eliminate the ISA and the £2k pension contribution gets tax relief and lowers your income. Tax relief is lowering your tax bill.   But its not an expense of the company.

MDMD

dunstonh said:

I'm a sole-trader, and currently have no savings for retirement. Can a pension be used as an expense?

Not for a sole trader.  It can for a limited company director (pension only).  

However, your taxation is in line with your company.  So, a pension contribution gains tax relief and does in effect reduce your taxation.   Whilst you may have a business banking account and trading name, you and your company income are linked.   Unlike a limited company where they are separate.

For example, if I earn 20k a year and put 2k into a pension/ISA, can I put 18k as earnings and 2k as an expense... Saving on my tax bill, whilst investing in my future?

ISAs have nothing to do with business and are never an expense.

In your example, eliminate the ISA and the £2k pension contribution gets tax relief and lowers your income. Tax relief is lowering your tax bill.   But its not an expense of the company.

Slightly ambiguous language - a sole trader won’t be a “company”, better to call it a “business”

Alexland

If under 40 you might want to look at S&S Lifetime ISAs as for a basic rate taxpayer it's the same 25% uplift as a pension contribution but with a LISA there is no tax on withdrawal from age 60.