Self employed on universal credit support, need pensionm what are the options?

seatbeltnoob

By law every employee is entitled to an employer supported private pension.

As a self employed person who wears both hats there isn't a beenfit to me because I dont have the "employer top up" element of a workplace pension scheme.

I have done a bit of reseasrch and it seems that for someone who knows a little bit about stock markets and is confident about choosing where investments go. A self invested pension plan (SIPP) is the best way to go.

You just into a SIPP and that is your private pension.

What is the catch? UC is so against "deprivation of capital" and all the malarky. What is to stop someone from putting in every penny above MIF into a SIPP?

Is there a limit to how much you can invest?

Obviously I am not planning on using a SIPP to abuse the system. But I need to put money away in a pension. What is a "normal" amount to put in. I am thinking of putting in £200 to £300 a month into a SIPP.

Do I pay the SIPP funds from company funds or personal funds after wages?

How is it treated for income tax purposes?

Thanks

born_again

Maybe have a read of this thread in relation to SIPP

https://forums.moneysavingexpert.com/discussion/6534213/universal-credit-wont-deduct-sipp-contributions#latest

kaMelo

Are you sole trader or limited company?

seatbeltnoob

kaMelo said:

Are you sole trader or limited company?

both.

Around 80% of my income is through the ltd company. around 20% of my income is sole trader (passive income from blogs).

But for UC it doesnt matter everything is rolled into one.

seatbeltnoob

born_again said:

Maybe have a read of this thread in relation to SIPP

https://forums.moneysavingexpert.com/discussion/6534213/universal-credit-wont-deduct-sipp-contributions#latest

not relevant to me. They are employed. I am self employed so I dont have that issue with SIPP as I can declare the SIPP contributons each month to UC and have them factor that in.

kaMelo

seatbeltnoob said:

kaMelo said:

Are you sole trader or limited company?

both.

Around 80% of my income is through the ltd company. around 20% of my income is sole trader (passive income from blogs).

But for UC it doesnt matter everything is rolled into one.

As a Ltd.co your company can make employer contributions on your behalf. The contributions are an allowable business expense for UC and can be a more tax efficient way of making contributions into your pension.

NedS

For UC purposes, the MIF will effectively limit the benefits of contributing to a pension in terms of the amount of UC you can receive, as if you were to contribute more and take your net earnings below the MIF, the MIF would still apply for UC purposes. There would still be the benefits of receiving the tax relief though. There are no UC rules limiting the amount you can pay into a pension - the rules simply state that any relievable contributions should be deducted when calculating entitlement to UC. The amounts that are relievable are defined by HMRC.

As you are self employed, and also have a ltd company, you are self employed, and both an employer and an employee of the ltd company. So you have lots of options available to you for paying into a pension.

The self employed bit you know about - you are asked to declare your self employed earnings each AP, and there is a box to enter any pension contributions made from self employed earnings within the AP which are automatically deducted from your net assessed income. If you have excess income over the MIF in the AP, it would seem to make sense to contribute this amount to reduce your income to the MIF in that AP. You automatically receive 20% tax relief on such contributions (relief at source), subject to HMRC limits making this an extremely effective method if you are a low rate tax payer.

If you have income into the ltd company, you have two choices. The company can make an employer contribution straight from the company, thus avoiding corporation tax and reducing company profits. You will not receive personal tax relief on this as it is not taxable earnings for you - the relief is that the ltd company has not paid tax on these profits. UC likewise sees this as a reduction in profits for the business. You can also pay yourself a PAYE wage from the ltd company, and you could make pension contributions out of this paid salary to reduce your taxable income (net pay arrangements). Making contributions to a pension from PAYE paid income under net pay arrangements reduces your NET pay that is reported to UC whereas making payments into a SIPP out of your received net pay (relief at source) would have to be reported to UC and get them to deduct this amount which may be difficult so this may be your least preferable option. You could set up an employers scheme and make the contributions directly out of your PAYE earnings (net pay arrangements), thus reducing any income tax paid (depending on your earnings) and alleviating any reporting issues with UC, but you are probably not earning/paying yourself above the tax threshold anyway?

The folks in the pension forum will be able to give better / more specific advice about making pension contributions from a ltd company and the tax benefits of doing so (but will be less aware of UC benefits, which you understand well anyway). You will need to work out the most efficient way for you, maximising UC and the tax relief you can receive based on your circumstances.

For reference, you will need to give us an indication of your taxable profits (income after expenses, but before tax) from your self employed work and ltd company, as this may help advise which is the most tax efficient route for you to take. The answer may be very different if earning £10k per year compared to earning £50k per year. It would also be useful to know how much you are able to contribute and how much income you need left to live on each month.

seatbeltnoob

kaMelo said:

seatbeltnoob said:

kaMelo said:

Are you sole trader or limited company?

both.

Around 80% of my income is through the ltd company. around 20% of my income is sole trader (passive income from blogs).

But for UC it doesnt matter everything is rolled into one.

As a Ltd.co your company can make employer contributions on your behalf. The contributions are an allowable business expense for UC and can be a more tax efficient way of making contributions into your pension.

its just needlessly complicated for you to do this as tyour own employer - added layer of beauracrcy. As an employee you opt out. Also SIPP are by far the best cost saving option as your management fees are a lot less.

Grumpy_chap

seatbeltnoob said:

kaMelo said:

seatbeltnoob said:

kaMelo said:

Are you sole trader or limited company?

both.

Around 80% of my income is through the ltd company. around 20% of my income is sole trader (passive income from blogs).

But for UC it doesnt matter everything is rolled into one.

As a Ltd.co your company can make employer contributions on your behalf. The contributions are an allowable business expense for UC and can be a more tax efficient way of making contributions into your pension.

its just needlessly complicated for you to do this as tyour own employer - added layer of beauracrcy. As an employee you opt out. Also SIPP are by far the best cost saving option as your management fees are a lot less.

I disagree.

As a Ltd Co owner / Director, the most tax efficient way to make pension contributions is directly from the Ltd Co as EMPLOYER contributions to SIPP.  That avoids corporation tax, NI (-er plus -ee), income tax on the amount contributed.
It doesn't matter about auto-enrollment as that is irrelevant for owner / Director Ltd Co.

That is the normal base case.  I am not knowledgeable as to whether claiming UC changes that preferential tax position such that an alternative means of pension contributions becomes more effective.  Hopefully another member of the forum will be able to comment.

(I write as Ltd Co owner / Director.)

seatbeltnoob

Grumpy_chap said:

seatbeltnoob said:

kaMelo said:

seatbeltnoob said:

kaMelo said:

Are you sole trader or limited company?

both.

Around 80% of my income is through the ltd company. around 20% of my income is sole trader (passive income from blogs).

But for UC it doesnt matter everything is rolled into one.

As a Ltd.co your company can make employer contributions on your behalf. The contributions are an allowable business expense for UC and can be a more tax efficient way of making contributions into your pension.

its just needlessly complicated for you to do this as tyour own employer - added layer of beauracrcy. As an employee you opt out. Also SIPP are by far the best cost saving option as your management fees are a lot less.

I disagree.

As a Ltd Co owner / Director, the most tax efficient way to make pension contributions is directly from the Ltd Co as EMPLOYER contributions to SIPP.  That avoids corporation tax, NI (-er plus -ee), income tax on the amount contributed.
It doesn't matter about auto-enrollment as that is irrelevant for owner / Director Ltd Co.

That is the normal base case.  I am not knowledgeable as to whether claiming UC changes that preferential tax position such that an alternative means of pension contributions becomes more effective.  Hopefully another member of the forum will be able to comment.

(I write as Ltd Co owner / Director.)

I thought the income tax is returned so you would just pay the equivalent amount through PAYE as an "opted out" employee. Put it through SIPP yourself and get tax rebate?

isn't that how it works?

I guess I need to do some more reading. I thought SIPP cannot be paid via workplace - I thought the name suggested that it's something an individual puts away themselves.

seatbeltnoob

NedS said:

For UC purposes, the MIF will effectively limit the benefits of contributing to a pension in terms of the amount of UC you can receive, as if you were to contribute more and take your net earnings below the MIF, the MIF would still apply for UC purposes. There would still be the benefits of receiving the tax relief though. There are no UC rules limiting the amount you can pay into a pension - the rules simply state that any relievable contributions should be deducted when calculating entitlement to UC. The amounts that are relievable are defined by HMRC.

As you are self employed, and also have a ltd company, you are self employed, and both an employer and an employee of the ltd company. So you have lots of options available to you for paying into a pension.

The self employed bit you know about - you are asked to declare your self employed earnings each AP, and there is a box to enter any pension contributions made from self employed earnings within the AP which are automatically deducted from your net assessed income. If you have excess income over the MIF in the AP, it would seem to make sense to contribute this amount to reduce your income to the MIF in that AP. You automatically receive 20% tax relief on such contributions (relief at source), subject to HMRC limits making this an extremely effective method if you are a low rate tax payer.

If you have income into the ltd company, you have two choices. The company can make an employer contribution straight from the company, thus avoiding corporation tax and reducing company profits. You will not receive personal tax relief on this as it is not taxable earnings for you - the relief is that the ltd company has not paid tax on these profits. UC likewise sees this as a reduction in profits for the business. You can also pay yourself a PAYE wage from the ltd company, and you could make pension contributions out of this paid salary to reduce your taxable income (net pay arrangements). Making contributions to a pension from PAYE paid income under net pay arrangements reduces your NET pay that is reported to UC whereas making payments into a SIPP out of your received net pay (relief at source) would have to be reported to UC and get them to deduct this amount which may be difficult so this may be your least preferable option. You could set up an employers scheme and make the contributions directly out of your PAYE earnings (net pay arrangements), thus reducing any income tax paid (depending on your earnings) and alleviating any reporting issues with UC, but you are probably not earning/paying yourself above the tax threshold anyway?

The folks in the pension forum will be able to give better / more specific advice about making pension contributions from a ltd company and the tax benefits of doing so (but will be less aware of UC benefits, which you understand well anyway). You will need to work out the most efficient way for you, maximising UC and the tax relief you can receive based on your circumstances.

For reference, you will need to give us an indication of your taxable profits (income after expenses, but before tax) from your self employed work and ltd company, as this may help advise which is the most tax efficient route for you to take. The answer may be very different if earning £10k per year compared to earning £50k per year. It would also be useful to know how much you are able to contribute and how much income you need left to live on each month.

Thanks for the reply.

My total combined profits calculated as per UC SE rules is around £1850 each month. MIF is £1556.30 I beleive.

The profits around around £1600 on the LTD co earnings. and £250 via sole trader. But it does vary a lot. I have always set my target at minimum of £1850. Some months my ltd co earnigns are low so I go out and do some sole trader delivery work to make more that way.

Most important I can afford to pay £290 into pensions each month. It wont affect my living costs. I would like flexibility on how much I invest into pension each month.In case I have an odd month where I need to spend a bit more. I was surprised at this pension allowance, it beats savings the money in your bank account and getting a capital penalty!

I suppose in the long run it helps the government as I will rely less on welfare state when I retire and redeem the pension.