Maximise Pension Contributions to Help Ease the Pain of IR35

Last Updated: 29-11-2020

Reading Time: 3 minutes

UK Contractors are planning for life after Private Sector IR35 rolls out on April 6th. They face choices, the biggest how they're going to work from hereon in.

Some will look for roles outside IR35, perhaps in the unaffected SME sector. Others will work under an umbrella company, accepting the new law.

But for some, their contractor lifestyle will be over. They'll simply wind up their limited companies and move into permanent employment.

Only you know which path is the right one for you. Talking to an expert, like QDOS, can help you decide if contracting is still viable for you.But don't be too quick to write off the sector in a knee-jerk reaction or because that's the flock mentality. There are still legitimate ways to save on taxes, pension contributions amongst them. Here, we look at your options.

How to Most Efficiently Pay Pension Contributions

Post IR35 reform, one constant is that pensions will still help reduce your tax liabilities. Depending on how you work, here's what you should consider:

Winding up your limited company

Have you considered maximising your pension allowances before shutting up shop? You could divert company funds into a personal pension fund. This will reduce your exposure to capital gains tax when liquidating company funds.

Working under an umbrella company

Have you considered making pension contributions via salary sacrifice? Many umbrella companies allow you to divert earnings into a personal pension. This, in turn, reduces your exposure to both income tax and national insurance.

Forging ahead, contracting outside IR35

Have you optimised tax savings available by making an employer pension contribution? You can pay into your personal pension through your limited company.

It makes sense to contribute this way up to your annual allowance. Those payments then count as tax-deductible expenses, helping to reduce corporation tax liabilities.

Act now, whilst there's still a window

With only three weeks of the tax year remaining, now is the time to take action. Whichever your personal situation, pensions remain a valuable tax planning tool.

Our advisors can talk to you about your circumstances in more detail. If you need more in-depth information, please get in touch and/or request a call back. Don't leave it until the last minute to make these potential bottom line savings.

Author: John Yerou

John Yerou is a pioneer of contractor mortgages and owner and founder of Freelancer Financials, Contractor Mortgages®, C&F Mortgages and Self Employed Mortgages, trading styles and brands of the award-winning Mortgage Quest Ltd.

Posted by John Yerou

on March 16th, 2020 14:11pm in Financial Advice Blog.