Freelancing in Retirement

John1201 · 15 June 2019 at 5:48PM

At the age of 62, I’ll be retiring from full-time employment next week but plan on doing some freelance work to ease the transition into full retirement.

My plans are at an early stage but registering as self-employed with the HMRC seems to be a necessary first step.

If you’ve taken a similar step when retiring what advice would you give me and other people who are contemplating this?

Dazed_and_confused · 15 June 2019 at 6:59PM

Check your State Pension forecast (available on gov.uk) to see if the opportunity to be able to pay Class 2 National Insurance is beneficial.

Unless your consultancy is connected to your previous employment you could read up on the "trading allowance".

If you are considering future pension contributions you should remember that unless you are Scottish resident for tax purposes they are unlikely to save you any personal tax but might be worth considering to get the basic rate relief uplift the pension company will add to your pension fund.

Consider setting some of your turnover aside for any future tax bill (how much will depend on your other taxable income).

Don't leave it to the last minute to file your Self Assessment return.

Dazed_and_confused · 15 June 2019 at 7:07PM

And have a lie in a week on Monday

Apodemus · 16 June 2019 at 5:07AM

Dazed_and_confused wrote: »

... unless you are Scottish resident for tax purposes they are unlikely to save you any personal tax but might be worth considering to get the basic rate relief uplift the pension company will add to your pension fund.

D&C, I’m perhaps being a bit slow this morning, but can you explain this to me? Surely the only point where the Scottish situation is different is the difference between the tax rates and hence tax relief, that applies? Both would lead to savings on tax paid?

Apodemus · 16 June 2019 at 5:16AM

John1201, I think we would need to know more about the scale of work that you envisage. Also, what your current pension arrangements are?

Are you talking about a little free-lancing for pin-money, or the sort of income where making more complex arrangements for tax and pension are worthwhile?

If you are starting to draw a defined contribution pension, your options for payments to additional pensions might be restricted, but possibly less so if you are in a defined benefit scheme.

Dazed_and_confused · 16 June 2019 at 7:17AM

Surely the only point where the Scottish situation is different is the difference between the tax rates and hence tax relief, that applies? Both would lead to savings on tax paid?

As a self employed person you might decide to contribute to a "relief at source" pension scheme (usually a personal pension, stakeholder or SIPP).

Most people pay basic rate so the pension contributions won't reduce your personal Self Assessment liability, you just get the basic rate (20%) tax relief added to the pension fund.

But a Scottish resident may well be liable to the 21% intermediate tax rate as this kicks in much earlier than the higher rate threshold.

Relief at source pension contributions increase the amount of basic rate tax payable so in this situation would reduce the amount of 21% tax payable.

Marginal gains but still a possible reduction in any Self Assessment liability.

Apodemus · 16 June 2019 at 11:55AM

D&C, thanks - I tend to ignore the whole 19/20/21% mess, on the assumption that the marginal differences are below the general level of error in my planning scenarios.

Freelancing in Retirement

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