Can Umbrella Businesses Have a Pension Scheme?
{ Umbrella Company Pension Schemes — Everything You Need to Know |} Pension schemes help employees put money aside for retirement directly from their wage. The problem for self-employed professionals is thatthey need to manage themselves,either by setting up a pension scheme or saving money from their earnings. Fortunately,umbrella companies course contractors as employees,providing them all the advantages of employment. That includes a retirement scheme,which nowrequires participation from the umbrella company too. Let’s take a better look at the statutory retirement strategies available through umbrella companies. {In 2012,the UK Government determined that workers weren’t saving enough for their retirement. |} Individuals were relying on the State Pension,that had not received adequate funding to match the continuing rise in life expectancy and an ageing population. {To fight this,they introduced automatic enrolment. |} The new system,rolled from 2012 to 2018,requires employers to automatically enroll qualified employees onto a workplace pension scheme. Employers will also be responsible for deducting donations from their pre-tax income and creating a minimal statutory contribution to the employee’s savings. In October 2012,this minimal contribution has been set to 1 percent for employees,that was matched by employers,rising in 2018: October 2012 to 5th April 2018: employers 1 percent,employees 1% 6th April 2018 to 5th April 2019: employers 2%,employees 3% 6th April 2019 onwards: employers 3%,employees 5% However for anyone that doesn’t need to donate to a retirement as soon as you’re enrolled you can still opt out. {Working through an umbrella company,contractors are classed as an employee. |} That means,yes,you are automatically enrolled onto the umbrella company’s pension scheme provided that you fulfill the following criteria: Your job is primarily UK-based You earn more than #10,000 annually You’re between 22 and the state pension age. Until 5th April 2019,3% of your pre-tax salary will go directlyinto a retirement fund,with the umbrella company leading to a further 2%. From 6th April 2019,5% of your pre-tax salary will enter the exact same pension fund,with your umbrella company contributing a further 3%. The benefits of an umbrella company pension Some contractors may worry that this will eat away at their wages. Don’t. {Pension contributions are made prior to your wages are taxed. |} That means anything that goes from your wage in your pension fund is tax-free instead of being taxed at 20% or even 40 percent. So,rather than getting 60% of your earnings,you get 100% using a pension fund. Let’s say you earn more than46,351 per year,which sets you in the higher rate band of income tax. {Whatever you earn beyond that #46,351 per year (approximately #3,863 per month) is taxed at a rate of 40%. |} You receive just #60 for every #100 of income. Why not place the full #100 straight into the pension fund instead? That is the reason why many people,particularly people in the higher rate band of income tax,opt to place more than the minimal in their retirement fund. And this is completely possible. Contractors can contribute upto #40,000 to their retirement scheme each year,comprising tax-free income and company contributions. At this time,there is a lifetime allowance of #1,030,000 that can be donated before incurring any tax. Using your funds {With the increased earnings of contracting,it is common for contractors to retire early. |} Alternatively,you might simply want to get some of the money out for a vacation,new car or home improvement. The fantastic news isthat you do not need to wait until the state retirement age to get the pension funds you have built up through your umbrella company retirement. As soon as you’re 55 or over,you are able to get up to 25% of your pension pot as a tax-free lump sum. Anything outside the 25% will be taxed as an accession to the rest of your earnings that tax year — 20% over #11,850,40 percent over #46,351 or #45% over #150,000,as things now stand. That is why most people choose to take their retirement as regular income as soon as they have retired,to minimise the amount of tax free. {Contractors who function as a limited company can still benefit from the tax relief of a retirement scheme. |} However,as with the majority of things relating to limited companies,this needs a lot more effort on their part. Primarilythey have to get the ideal balance between salary and dividend payments to boost the limit in their retirement contributions. Because employer contributions,like pensions,count as a business cost,they are subject to tax relief. So,when you donate to your pension scheme,as a manager,the company can spend less in business tax. But this has added complications because it ought to be completely compliant as an allowable cost. Any other employees,for instance,should be given similar packages to prove to HMRC that it’s a real business expense. In addition to all that,utilizing a limited company retirement scheme entails setting up and paying into the retirement fund yourself. Along with all the other administrative work for limited company owners,it is definitely worth seeking assistance and advice from a trustworthy accountant. Get the Ideal help Whether you’re searching to compare umbrella companies or find the right accountant,you are able to make the ideal decision with -. Our online comparison tool lets you assess multiple companies in a matter of minutes. It could not be easier to take the hassle from contracting. Contact us today for more information.