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        Updated: April 08, 2024

        Self-Employed Pension Tax Relief

        You can still claim tax relief on your pension contributions if you're self-employed. To find out more about how to do this have a look through our in-depth guide.

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        We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in pensions. Ask us a question and we'll get the best expert to help.

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        Being self-employed can be rewarding, but with no pension auto-enrolment, saving for retirement doesn’t always come easy.

        Which may be why the statistics say the UK’s self-employed are less likely to put aside a financial nest egg for retirement. But knowing exactly what you could get in tax relief, and additional savings you can make on corporation tax, can be a powerful incentive to making the right provisions for your future.

        In this article, we help you learn how to make your self-employed pension contributions work harder for you. Learn how tax relief works, what’s available and whether you’re eligible.

        If you’re self-employed and would like advice about saving for your income in retirement, make an enquiry for a free, no-obligation chat and we’ll connect you with one of the pensions experts we work with.

        The experts we work with are all independent financial advisors with access to all the pension providers in the UK. If you want to set up a pension they can advise you of the ways you can do this and help make sure you’re on track to secure a retirement income at the level you desire.

        Tax treatment of pension contributions as self-employed

        If you are paying into a pension as self-employed, you are eligible for tax relief on your contributions.

        Your pension provider will automatically claim your rate of tax relief from the government when you pay money into your pension – this is known as relief at source. The funds claimed are the tax relief on your contributions.

        The basic rate for pension contribution tax relief is 20%, so for every £80 you pay into your pension as a net contribution, the government will add £20, bringing your payment up to a total of £100. This total sum is called your gross pension contribution.

        If your earnings place you in a higher tax bracket than the basic 20% tax rate, you can claim additional tax relief. But this won’t be added at source to your pension. You’ll need to claim the extra tax relief through your personal tax return.

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        Are self-employed pension contributions tax-deductible?

        You can deduct your pension contributions from your taxable income. For example, if your annual earnings were £50,000, and you contribute £2,000 into your pension, this reduces your total taxable income to £48,000.

        If you have a limited company, your pension contributions are an allowable business expense. This means that on top of the income tax savings, your company also receives corporation tax relief and could save the company up to 19% on tax owed.

        This is a strong incentive for making a pension contribution as it allows you to keep more of your income stashed away in your pension, instead of paying it out in taxes.

        In addition to being able to deduct pension contributions from your taxable income, there are some payments you can make tax-free. These might include a charitable donation or paying off a loan.

        If you’d like advice on pension tax relief that’s specific to your earnings and situation, contact us and we’ll put you through to one of the expert pensions advisors we work with.

        Do self-employed pay tax on pension contributions?

        There are limits to how much you can contribute to your pension tax-free:

        • You can’t contribute more than £40,000 per year into your pension – this is known as the annual allowance
        • Tax relief on private pension contributions is limited to 100% of your yearly income

        The government has capped the maximum amount of tax relief on pension contributions at an annual allowance of £40,000.

        Even if your income isn’t big enough to be taxed, you can still pay into a personal pension scheme and benefit from 20%  tax relief on the first net £2,880 you contribute in a year.

        Are self-employed pension contributions an allowable expense?

        Although many business expenses are tax-deductible for the self-employed, you can’t claim your personal pension contributions as an expense.

        However, if you have employees, you will be able to claim some employee insurance and pension benefits as an allowable expense.

        To learn more about how to maximise allowable expenses and effectively claim tax relief on your pension, speak to an expert financial advisor.

        Financial advisors usually save people far more than they cost with their expert knowledge of tax and financial planning. Make an enquiry and we’ll put you through to one of the expert financial advisors we work with.

        Self-employed pension tax return

        If you earn £50,000 or more, you will be paying income tax at 40% and will be able to claim an extra 20% tax relief on your self-employed pension through your Self Assessment tax return.

        To do this, enter your self-employed pension contributions into the section of your tax return labelled ‘tax reliefs’.

        Are there tax credits for self-employed pension contributions?

        The answer is yes! The self-employed are no exception when it comes to tax credit entitlement and the government offers tax credits as a tax incentive. This enables some taxpayers to subtract the amount they’ve collected in credits from their total taxes owed.

        HMRC defines self-employed as being regularly engaged in an activity on a for-profit commercial basis and tax credits follow the tax system for calculating self-employment income. Your tax credits will accrue at a daily rate throughout the year.

        An expert financial advisor can offer you further guidance on how to calculate your tax credits and how much you may be able to claim back in tax relief. Make an enquiry for advice that’s tailored to your situation and needs.

        How can I calculate my pension tax relief?

        The total amount of tax relief you can claim will vary according to your tax band.

        To calculate your self-employed pension tax relief you’ll need to know how much you’re paying into your pension in total, what your tax band is and, if you’re a higher rate taxpayer, how much you can claim back in your tax return.

        However, if you are a contractor who is an employee in all but name, the government has introduced a piece of legislation called IR35 which enables HMRC to collect additional payment.

        For best results in calculating your pension tax relief speak to an expert advisor. A financial advisor will understand the ins and outs of pension tax relief and can help you ensure you’re making the most of your pension contributions…

        Speak to an expert pensions advisor today!

        Tax relief can be a complex area but once you’ve got a handle on it, it can pay back big dividends.

        Boost your financial future by making the most of any tax relief on your pension contributions. Speaking to an expert can give you a head start on maximising tax relief. A financial advisor will understand the details of your situation and can show you how to make the most of your pension contributions.

        Contact us on 0808 189 0463 or make an enquiry and we’ll put you through to a self-employment pensions expert who will be happy to answer all your questions and ensure you get the right advice when it comes to maximising your pension opportunities and minimising the amount of tax you have to pay.

        Ask a quick question

        We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in pensions. Ask us a question and we'll get the best expert to help.

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        Richard Angliss

        Finance Expert

        About the author

        Richard Angliss has made a career in financial services which stretches over 40 years.

        His early career was spent learning about the various financial products and applying them to prudent advice, working for one of the largest life assurance and investment firms. After that he joined the financial services arm of a very well-known firm providing independent advice to their 8 million customers.

        For the last 20 years he has been involved in building software solutions that help Advisers and clients work together to achieve good financial outcomes and helping to set up three independent advisory firms. He also has written many articles for financial services publications and provided commentary for newspaper journalists.

        At an early stage in his career he realised the great satisfaction that comes with being able to help people achieve their goals and protect their families. “Regulation of financial services has hugely impacted on ensuring people get appropriate advice. The issue these days is access to that advice and just as importantly regular reviews to make sure that everything stays on track”.

        With the growing development of online resources such as Online Money Advisor he sees a great future for people to access advice to make their pension and investment work harder for them.  Plus, of course, to ensure they have insurance products in place that will be required when unforeseen events happen.

        He knows getting that balance right is crucial to prudent financial planning and the wellbeing of individuals and their families.

        FCA Disclaimer

        *Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us as well as any of our own are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

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