Can Umbrella Companies Have a Pension Scheme?
{ Umbrella Company Pension Schemes — Everything You Need to Know |} Pension schemes assist employees put money aside for retirement directly from their own commission. The problem for self-employed professionals is they need to manage thisthemselves,by simply setting up a pension scheme or saving cash from their income. Fortunately,umbrella firms class contractors as employees,giving them all of the advantages of employment. Including a pension scheme,which nowrequires contribution from the umbrella company too. Let us take a closer look at the statutory pension schemes available through umbrella businesses. {In 2012,the UK Government determined that workers were not saving enough for their retirement. |} People were relying on the State Pension,which had not received sufficient funding to match the ongoing increase in life expectancy and an ageing population. {To combat this,they introduced automatic enrolment. |} The new system,rolled outfrom 2012 to 2018,requires companies to automatically enrol eligible employees on a workplace pension scheme. Employers are also responsible for deducting contributions in their pre-tax income and making a minimal statutory contribution to the employee’s savings. In October 2012,this minimal contribution has been set to 1 percentage for employees,which was matched by companies,rising in 2018: October 2012 to 5th April 2018: companies 1 percent,employees 1 percent 6th April 2018 into 5th April 2019: companies 2 percent,employees 3% 6th April 2019 onwards: employers 3 percent,employees 5 percent But for anyone that doesn’t want to donate to a pension once you’re registered it is still possible to opt out. {Working through an umbrella company,contractors are recognized as an employee. |} That means,yes,You’re automatically registered on the umbrella company’s pension scheme provided that you meet the following criteria: Your work is primarily UK-based You earn greater than #10,000 per year You’re between 22 and the state pension age. Until 5th April 2019,3 percent of your pre-tax wages will go into a pension fund,with the umbrella company contributing a further 2%. By 6th April 2019,5% of your pre-tax wages will go into precisely the exact same pension fund,with your umbrella company contributing a further 3%. The benefits of an umbrella company retirement Some contractors can worry that this may eat away at their wages. Do not. {Pension contributions are made before your wages are taxed. |} That means anything that goes out of your wage into your pension fund is tax-free instead of being taxed at 20% or even 40 percent. So,rather than receiving 60% of your income,you get 100% via a pension fund. Let us say you earn over #46,351 per year,which sets you at the higher rate band of income tax. {Anything you earn beyond that #46,351 per year (approximately #3,863 a month) is taxed at a rate of 40%. |} You receive just #60 for each #100 of income. Why don’t you put the full #100 directly into the retirement fund rather? That’s the reason why lots of people,especially those in the higher rate band of income tax,opt to put more than the minimal into their pension fund. And this is completely possible. Contractors can contribute upto #40,000 to their pension scheme per year,comprising tax-free income and employer contributions. At this time,there is a lifetime allowance of #1,030,000 which can be contributed before incurring any tax. With your budget {With the increased earnings of contracting,it’s typical for contractors to retire early. |} As an alternative,you might only wish to find some of the cash out for a holiday,new car or home improvement. The good news isthat you do not need to wait until the state pension age to get the pension funds you’ve built up through your umbrella company pension. Once you’re 55 or more,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 addition to the remainder of your income that tax year — either20% over #11,850,40 percent over #46,351 or #45% over #150,000,as things now stand. That’s why most people choose to take their pension as regular income once they’ve retired,to minimise the quantity of tax paid. {Contractors who function as a limited company can still benefit from the tax relief of a pension scheme. |} However,as with most things relating to limited companies,this needs much more effort on their own part. Firstlythey must find the right balance between wages and dividend payments to increase the limit on their pension contributions. Because employer contributions,like pensions,count as a business expense,they’re subject to tax relief. So,when you donate to your pension scheme,as a manager,the company could spend less in business tax. But this has additional complications since it ought to be fully compliant as an allowable expense. Any other employees,by way of instance,ought to be given comparable packages to prove to HMRC that it’s a genuine business expense. On top of all that,utilizing a limited company retirement scheme entails setting up and paying into the pension fund yourself. Along with all the other administrative work for limited company owners,it’s definitely worth seeking advice and assistance from a trusted accountant. Get the Ideal help Whether you are looking to compare umbrella firms or find the appropriate accountant,you are able to make the right decision with -. Our online comparison tool allows you evaluate numerous businesses in a matter of minutes. It could not be much easier to take the hassle from contracting. Contact us today for more information.