Can Umbrella Companies Have a Pension Scheme?

{ Umbrella Company Pension Schemes — Everything You Want to Know |} Pension schemes assist employees put money aside for retirement straight from their wage. The issue for self-employed professionals is thatthey will need to handle thisthemselves,either by setting up a retirement strategy or saving cash from their income. Fortunately,umbrella companies class contractors as employees,giving them all of the benefits of employment. That includes a pension scheme,which nowrequires participation from the umbrella company too. Let’s take a better look at the statutory pension schemes available through umbrella companies. {In 2012,the UK Government determined that employees weren’t saving enough for their retirement. |} People were relying on the State Pension,that had not received adequate funding to match the ongoing increase in life expectancy and an ageing population. {To fight this,they introduced automatic enrolment. |} The new system,rolled from 2012 to 2018,requires companies to automatically enroll qualified employees on a workplace retirement strategy. Employers are also responsible for deducting donations in their pre-tax income and making a minimum statutory contribution to the employee’s savings. In October 2012,this minimum donation has been set to 1 percent for employees,that was matched by companies,rising in 2018: October 2012 to 5th April 2018: companies 1 percent,employees 1% 6th April 2018 to 5th April 2019: companies 2 percent,employees 3% 6th April 2019 admissions: employers 3%,employees 5% However for anybody that doesn’t need to contribute to a pension as soon as you’re enrolled you can still opt out. {Working through an umbrella company,contractors are recognized as an employee. |} That means,yes,You’re automatically enrolled on the umbrella company’s pension scheme provided that you fulfill the following criteria: Your job is primarily UK-based You earn greater than #10,000 annually You’re between 22 and the state pension age. Until 5th April 2019,3% of your pre-tax wages will go into a pension fund,together with the umbrella company contributing a further 2%. By 6th April 2019,5% of your pre-tax wages will go into the exact same pension fund,together with your umbrella company contributing a further 3%. The Advantages of an umbrella company retirement Some contractors may worry that this may eat away at their salary. Do not. {Pension contributions are made before your wages are taxed. |} That means anything that goes out of your wage in your pension fund is tax-free rather than being taxed at 20 percent or even 40 percent. So,rather than getting 60% of your income,you get 100 percent via a pension fund. Let’s say you get over #46,351 per year,which puts you at the higher rate band of income tax. {Anything you get beyond that #46,351 per year (approximately #3,863 a month) is taxed at a rate of 40%. |} You receive only #60 for each #100 of income. Why don’t you place the full #100 directly into the pension fund instead? That’s why many people,especially people in the higher rate band of income tax,choose to place more than the minimum in their pension fund. And this is entirely possible. Contractors can contribute to #40,000 to their pension scheme each year,comprising tax-free income and company contributions. Currently,there’s a lifetime allowance of 1,030,000 that can be donated before incurring any tax. With your funds {With the increased earnings of contracting,it is common for contractors to retire early. |} As an alternative,you may only want to find some of the cash out for a holiday,new car or home improvement. The fantastic news isthat you don’t need to wait till the state pension age to access the pension funds you’ve assembled through your umbrella company pension. As soon as you’re 55 or more,you can access up to 25 percent of your pension pot as a tax-free lump sum. Anything beyond the 25 percent will be taxed as an addition to the remainder of your income that tax season — 20% over #11,850,40 percent over #46,351 or 45% over #150,000,as things currently stand. That’s why most people choose to take their pension as regular income as soon as they have retired,to minimise the quantity of tax free. {Contractors who operate as a limited company can still benefit from the tax aid of a pension scheme. |} However,as with the majority of things regarding limited companies,this needs much more effort on their part. Firstlythey must find the ideal balance between wages and dividend payments to increase the limit in their pension contributions. Because employer contributions,like pensions,count as a business expense,they are subject to tax relief. So,when you contribute to your retirement strategy,as a director,the company could save money in business tax. However, this has additional complications since it needs to be fully compliant as an allowable expense. Any other employees,by way of instance,should be given similar packages to prove to HMRC that it is a real business investment. On top of all that,using a limited company retirement scheme entails setting up and paying to the pension fund yourself. Along with all the other administrative work to get limited company owners,it is definitely worth seeking assistance and advice from a trustworthy accountant. Get the Ideal assistance Whether you’re looking to compare umbrella companies or find the right accountant,you can make the ideal decision with . Our online comparison tool allows you assess numerous companies in a couple of minutes. It could not be easier to take the hassle out of contracting. Contact us today to learn more.

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