CAREER PURSUIT 2021

EXPERT ADVICE - SELF-EMPLOYMENT 36 PENSIONS FOR BUSINESS OWNERS owever, pensions can form an important part of the recruitment and retention of staff and be a tax-efficient means of extracting profits for the business owner. As a sole trader or a limited company, you are not under any obligation to set up a workplace pension, but the moment you employ your first member of staff, you must operate an Automatic-Enrolment (AE) or ‘workplace’ pension scheme. While many pension providers offer AE schemes, many limited companies are first registered with NEST (National Employment Savings Trust). There are several reasons for this: - it is well known to accountants - it is easy to set up and administer - there is no minimum monthly contribution - there is no minimum number of workers required. Whatever pension scheme you use for AE, I would encourage you to regularly monitor whether it is still suitable for your business. The AEmarket has evolved significantly since 2012 and there is an appetite for schemes amongst providers and so more competitive terms can be obtained. As your workforce grows, more pension companies will be willing to provide administration support to your company’s scheme; this will open up wider investment opportunities, may reduce costs, and can broaden the range of retirement options. As a business, offering an improved pension can support recruitment and retention of staff. Many providers offer their terms based on a combination of the following factors: number of staff, contribution level and value of potential transfers from any existing pension scheme(s). The suitability of AE pension schemes is too vast a subject to cover in sufficient detail here. So, I would encourage you to seek advice from a ‘whole of market’ (independent) financial adviser. Initial meetings are often at no cost to you, and any charges for recommendations and implementation will be agreed upon before further work is completed. As an employer operating an AE scheme, there are statutory minimum contributions that you must make (currently 3% of salary based on Qualified Earnings (QE), with the employee contributing 5%). There are alternative definitions of salary which are also worth exploring particularly if you have employees with fluctuating earnings. Both employer and employee, must use the same contribution basis. The way in which employee contributions are made should also be considered. Paying contributions fromPAYE (Pay As You Earn) attracts 20% tax relief for the employee, but using ‘Salary Sacrifice’ may prove more advantageous to both the business and the individual. For any new business owner, their first thought is rarely about pension contributions. Many will want to invest their funds into growing their business, so that they can first afford to pay themselves and then scale the business and pay their employees. H By Adam Rendall − Financial Adviser at Prosperity Wealth