Pensions for contractors

**Sockpuppet** · 24 March 2013, 11:10

Your employer wouldn't be in Canada. Your employer would be what ever vehicle you use to pay yourself in the UK and therefore subject to a standard UK pension - when the changes come in.

**Contreras** · 24 March 2013, 14:28

Originally posted by JasonB View Post

Hi,

As I may be entering the world of contractor, can anybody point me to a link with information as to how pensions work. With the new government policies coming in, how would that work if my employer is in Canada? Do I get them to add an allowance for pension, then I match that with my own contribution, or is it a completely new ball game.

Thanks
Jason

OK, firstly, the new ball game is as follows:

You <--> Your Ltd Co. (or an Umbrella Co.) <--> The Agent (optional) <--> The Client.

You must understand that your employer is Your Ltd Co. (or the Umbrella), and NOT the Client.

Regarding the pension question: do you actually want to set one up or not? Normally it's only worth doing in order to avoid higher rate income tax. If employed by Your co. then the usual method is for Your Co. to pay into the pension directly on your behalf for various reasons. If using an Umbrella then speak to them about it.

**northernladuk** · 24 March 2013, 19:28

Here you go... You can put any word or mix of words to search the site for any other questions you have...

https://www.google.co.uk/search?q=pe...1280&bih=939al

**Crofty** · 28 March 2013, 11:11

Income tax and double NI relief for pension payments

Originally posted by Contreras View Post

OK, firstly, the new ball game is as follows:

You <--> Your Ltd Co. (or an Umbrella Co.) <--> The Agent (optional) <--> The Client.

You must understand that your employer is Your Ltd Co. (or the Umbrella), and NOT the Client.

Regarding the pension question: do you actually want to set one up or not? Normally it's only worth doing in order to avoid higher rate income tax. If employed by Your co. then the usual method is for Your Co. to pay into the pension directly on your behalf for various reasons. If using an Umbrella then speak to them about it.

If you are able to work through a ltd company and not get caught by IR35 then your pension payments can be made either from the ltd company or yourself and they will attract income tax relief at whatever rate bracket you fall into for the amount you contribute.

For those working through an umbrella the situation is slightly different, all income (after expenses) paid out through an umbrella company is subject to PAYE tax and NI, because the umbrella company needs to cover the cost of the employer's NI, which is 13.8%, then they will deduct this out of your contract fee. In other words umbrella contractors' income above the personal threshold is subject to Employers NI, Employees NI and Income tax. The percentages are not worked from your contract fee but from your "salary" so that your salary plus employers NI equals your contract fee. I could do the maths here but I won't, it works out that just over 40% of your contract fee is deductible once expenses and personal allowance are covered and this is just for a basic rate taxpayer!!!

If your umbrella company runs a company pension scheme then you can enroll with them and ask to sacrifice a chunk of salary so that it can be paid into your pension pot, by doing this you effectively get relief from income tax, employers NI and employees NI. That works out at around 40% relief or is the equivalent to you paying 60 pounds out of your pocket and HMRC coughing up the other 40 pounds.

I know this as I used to operate as a limited company contractor, then IR 35 came along so I dodged the bullet and switched to composite company with lawspeed IR35 insurance and then when composites were ruled out I switched to umbrella and now I take a massive sacrifice on my salary to boost my pension pot.

Funny thing is that HMRC now collect less revenue from me because they moved the goal posts in an attempt to collect more.

Pensions for contractors