Self-employment, tax return and pension contributions

I'm not sure if this is the right place to ask this question so feel free to redirect me if I've got it wrong.

I'm self-employed and am making private pension arrangements. I understand that whatever I contribute to my pension will be topped up by the government by 25% as tax relief. I'm wondering how this works.

Do I pay in all the cash and then pay less tax when I file my return? Or do I still need to pay the tax with my return and then it gets added stright into my pension pot?

I'm trying to avoid paying in too much then getting hit with a bigger tax bill than I expected.

Thanks in advance for any help. :)
Emergency fund £8,500/£8,500
Mortgage overpayment £260
Debtfree!
£21,228.07 paid off in 22 months

Comments

  • Pennywise
    Pennywise Posts: 13,468
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    For a basic rate taxpayer, it doesn't affect the tax due on your profits.

    The tax relief is that HMRC pay into your pension pot. So if you pay £2,800 to your pension, HMRC also send them £800, so you get £3,600 in your pension pot.

    If you have a £5,000 tax liability on your business profit, you'll have that same tax liability whatever you pay into your pension.

    Things are different for higher rate taxpayers.

    It should all be explained in the paperwork provided by your pension company.
  • BabyStepper
    BabyStepper Posts: 771
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    Forumite
    Thanks for the speedy reply, Pennywise. That explains it. I haven't had any paperwork from my pension company yet, it's very new, but I'll have a good read when it arrives.
    Emergency fund £8,500/£8,500
    Mortgage overpayment £260
    Debtfree!
    £21,228.07 paid off in 22 months
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