As a self-employed individual, securing your financial future through pension contributions is a smart move. One of the significant advantages of saving for retirement is the tax relief you can access. In this short article, we’ll explore how to obtain tax relief on your pension contributions, whether you need an accountant’s help, and whether tax relief applies to pension contributions for both you and your employees we also provide a tax relief calculation.
How to Obtain Tax Relief
Obtaining tax relief on your self-employed pension contributions is relatively straightforward. You can do this through a process called ‘relief at source’ or ‘net pay arrangement,’ depending on your pension scheme.
Relief at Source: With this method, your pension provider claims basic rate (20%) tax relief directly from the government on your behalf and adds it to your pension pot. You’ll only need to contribute the net amount. For instance, if you contribute £100, your pension provider will claim £25 (20% of £125) from the government to make the total contribution £125. You don’t need to do anything additional to claim this relief.
Net Pay Arrangement: In this arrangement, your pension contributions are deducted from your gross pay before tax is calculated. This means you get tax relief at your highest income tax rate. If you’re a higher or additional rate taxpayer, this can result in more substantial tax savings. You don’t need to take any further action to claim tax relief in a net pay arrangement.
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Do You Need an Accountant to Claim Tax Relief?
You don’t necessarily need an accountant to claim tax relief on your self-employed pension contributions. Both relief at source and net pay arrangements are straightforward, and your pension provider typically handles the process. However, if you have complex financial situations or want personalised advice on optimising your pension contributions for tax efficiency, we have specialist advisors available to discuss your options with you.
Tax Relief for Employee Pension Contributions:
If you employ staff and offer a workplace pension scheme, you can receive tax relief on their pension contributions as well. Contributions made on behalf of your employees are generally treated as an allowable business expense, which means they can be deducted from your business profits before tax is calculated.
Calculating the Extent of Tax Relief:
Pension Tax Relief Calculations/Calculator
Calculate tax relief on your pension contributions. It is a relatively simple process. For example, if you’re in the basic tax rate of 20%, for every £100 you contribute, you’ll receive £25 in tax relief, making your total contribution £125.
If you’re in the higher tax rate of 40%, you can claim £40 in tax relief for every £100 you contribute, bringing your total contribution to £140.
For additional rate taxpayers at 45%, every £100 you contribute can be increased to £145 with tax relief.
Pro Start Pensions can provide you with specialist advice and guidance on all aspects of pension and retirement planning.
Get in touch for:
- Detailed consultation and personalised advice in accordance with your circumstances
- Suggestions on the fixed pension contribution or variable pension contributions you will be required to pay
- Detailed information about the offset tax figures for a 1, 5, 10 year period
- Cash flow modelling to provide you with your income figures during retirement.
- Setting up a new pension for your retirement.
