Pension

SVaz

Secret2ndAccount said:

I think if you had created a limited company, created shares and registered it, you would probably know. So it is likely you are a sole trader (you are the business). You need to tell HMRC you are a sole trader if you have not already done so. Your profits will be like your salary - it's your money and you are taxed on it as such.
If the business was to get a bit bigger, you could consider turning it into a limited company. Then you would have options like retaining profits within the business, and deciding when to pay yourself. You could pay dividends on the company shares (lower tax rate on dividends). You could have the company pay into your pension for you. At 30k it's probably not worth all the hassle of setting it up, so you stay as a sole trader.
Getting off the topic of pensions, there is another advantage to a limited company. It keeps the money separate from your money. Suppose you drop your bucket off the ladder and it hits someone on the head. They can sue you for all you are worth. You could lose your car, and even your home to pay them. If it's a limited company and they sue the company, the worst that can happen is that the company runs out of money and goes bankrupt. You still own your car and house. So there is a measure of protection with a limited company.

That’s why Public liability cover of £5-10 Million is essential if you are at peoples’ homes or businesses.  

I carry £10 million of cover in case I set fire to someone’s house with my blowtorch!  

DRS1

Secret2ndAccount said:

I think if you had created a limited company, created shares and registered it, you would probably know. So it is likely you are a sole trader (you are the business). You need to tell HMRC you are a sole trader if you have not already done so. Your profits will be like your salary - it's your money and you are taxed on it as such.
If the business was to get a bit bigger, you could consider turning it into a limited company. Then you would have options like retaining profits within the business, and deciding when to pay yourself. You could pay dividends on the company shares (lower tax rate on dividends). You could have the company pay into your pension for you. At 30k it's probably not worth all the hassle of setting it up, so you stay as a sole trader.
Getting off the topic of pensions, there is another advantage to a limited company. It keeps the money separate from your money. Suppose you drop your bucket off the ladder and it hits someone on the head. They can sue you for all you are worth. You could lose your car, and even your home to pay them. If it's a limited company and they sue the company, the worst that can happen is that the company runs out of money and goes bankrupt. You still own your car and house. So there is a measure of protection with a limited company.

I think the OP is posting about somebody else not himself.

But useful stuff for a wider conversation between the OP and whoever it is.

Secret2ndAccount

SVaz said: 

...

First year of trading profits also means putting aside double the amount of tax/NI because of payments on account.
I had to put away an extra £4k for my first year in profit due to this. 

It doesn't work quite the same way as it used to. Since we had Basis Period Reform, you calculate your profits after April, and pay the tax the next January. When you started in business, you may have been taxed twice on your first set of accounts. An 'Overlap Profit'. This would eventually be paid back to you in the form of Overlap Relief, which you perhaps claimed on your last self-assessment form.
Your first tax bill can seem a bit large because you've been in business for potentially a year and a half, and not paid any tax. If you put away 20% of your earnings, it shouldn't be too much of a shock. Yes, we still have payments on account, but that really only balances out the fact that you are paying tax for profits up to April, and you haven't paid them until the following January. We don't have double counting any more, so it shouldn't be an overly large bill unless your profits have recently dropped substantially.

Art2

Wow, yes, am asking for someone else, but this is all really good information, more than expected. The SIPP and People's pension is certainly good information and also liability insurance is certainly worth discussing with person, to see what is actually happening at present,  plus all the other points, haven't mentioned.

Really need to get a grip of it all, am taking notes also, so can go through each point.

Thank you to all of you replying with your knowledge and help on this, I really do appreciate it.

Art2

Plus the tax and National insurance comment, just going through all information.  Thank you.

Moonwolf

Anything that is saved is on top of the state pension. That means anything saved will add to that for a slightly better lifestyle. People will tell you that the state pension won’t exist that far ahead, but unless the government wants to see pensioners dying of hunger, something will be there and would certainly be a vote loser.  Obviously can’t rule out Weimar republic level inflation followed by total economic collapse but it is pointless planning for that unless you are a prepper.

Investing £100 every month with a growth of 2% over inflation will give about £50k in real terms in 30 years. The growth could be less, but that is a conservative figure for recent years so might be more, if was the figure I used in my spreadsheets. That should give £1500-£2000 a year index linked on top of the state pension depending how the income is taken. And remember the £100 only costs £80 for a basic rate taxpayer.

FIREDreamer

Moonwolf said:

Investing £100 every month with a growth of 2% over inflation will give about £50k in real terms in 30 years. The growth could be less, but that is a conservative figure for recent years so might be more, if was the figure I used in my spreadsheets. That should give £1500-£2000 a month index linked on top of the state pension depending how the income is taken. And remember the £100 only costs £80 for a basic rate taxpayer.

£50k will provide £1500-£2000 a year not £1500-£2000 a month, surely?

Moonwolf

FIREDreamer said:

Moonwolf said:

Investing £100 every month with a growth of 2% over inflation will give about £50k in real terms in 30 years. The growth could be less, but that is a conservative figure for recent years so might be more, if was the figure I used in my spreadsheets. That should give £1500-£2000 a month index linked on top of the state pension depending how the income is taken. And remember the £100 only costs £80 for a basic rate taxpayer.

£50k will provide £1500-£2000 a year not £1500-£2000 a month, surely?

Yes of course, sorry, I’ll edit it.

Albermarle

A point we make many times on this forum, is that the pension provider is much less important than what the money is invested in within the pension.
Consolidating the three into one, is mainly to reduce admin and may save a small amount in fees.
Being invested correctly for ones age and risk tolerance is much more important, especially in future years as the amount invested gets bigger.
Now each of the providers mentioned will put money into a default fund if one makes no other choices, so no need for your friend to make any instant decisions, but just be aware that it is the investment in the pensions and not the pension itself that brings the growth .

Art2

Thanks for the information, especially its the investment in the pensions and not the pension itself.....will look at that in more detail.
Plus the investing £100 every month, with a growth of 2% over inflation gives a good look at what would be looking at, and how they want to approach it all.
Thank you very much for taking the time to pass all the information on, certainly in a better position to look at it now than was previously. Much appreciated.