Reduce income tax through pension contributions as a sole trader

I am currently both employed and self-employed. Through employment I now reach £50k in earnings and therefore anything earned in excess of that attracts the 40% tax rate.

My self-employed income is around £5k per year and because of the aforementioned will be taxed at 40%, minus the £1k trading allowance. I do not need the cash for day to day expenses, so I wondered if it was possible to put everything beyond £1k into a personal pension and avoid paying any additional tax.

Comments

  • Albermarle
    Albermarle Posts: 22,115 Forumite
    First Anniversary First Post Name Dropper
    I am currently both employed and self-employed. Through employment I now reach £50k in earnings and therefore anything earned in excess of that attracts the 40% tax rate.

    My self-employed income is around £5k per year and because of the aforementioned will be taxed at 40%, minus the £1k trading allowance. I do not need the cash for day to day expenses, so I wondered if it was possible to put everything beyond £1k into a personal pension and avoid paying any additional tax.
    It is, but presumably you are paying into a pension with your current employment ? If so might just be easier to pay more into that.


  • I am currently both employed and self-employed. Through employment I now reach £50k in earnings and therefore anything earned in excess of that attracts the 40% tax rate.

    My self-employed income is around £5k per year and because of the aforementioned will be taxed at 40%, minus the £1k trading allowance. I do not need the cash for day to day expenses, so I wondered if it was possible to put everything beyond £1k into a personal pension and avoid paying any additional tax.
    Maybe just the way you've worded it but that isn't how you will be taxed.

    It's the profit after the trading allowance that will be taxed, not profit taxed then £1k deducted.
  • I am currently both employed and self-employed. Through employment I now reach £50k in earnings and therefore anything earned in excess of that attracts the 40% tax rate.

    My self-employed income is around £5k per year and because of the aforementioned will be taxed at 40%, minus the £1k trading allowance. I do not need the cash for day to day expenses, so I wondered if it was possible to put everything beyond £1k into a personal pension and avoid paying any additional tax.
    It is, but presumably you are paying into a pension with your current employment ? If so might just be easier to pay more into that.


    Thanks, also a possibility. AVCs into my company pension would be a fixed additional percentage, but my self-employed income is somewhat variable. I'd have to weigh up the options.

    Good to get confirmation that adding to a personal pension is an option though.
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