CAREER PURSUIT 2021

EXPERT ADVICE - SELF-EMPLOYMENT 37 So far, this article has looked at pensions for employees. However, I want to use the final few paragraphs to look at the options a business owner/director may have with pension contributions for themselves. I will refer to this as an ‘executive pension scheme’. This can take one of several different guises, depending on the needs of the individual and, in some cases, the business. As a LimitedCompanyDirector, your pension contributions made from your business are tax free and will reduce your corporation tax bill. The diagram above shows the difference between the benefits of making pension contributions and paying out the same amount as dividends. Whilst there is an advantage to making pension contributions, you must consider your current and potential future access requirements, as pension withdrawals are not permitted until you reach 55, rising to 57 on 6 April 2028. On retirement it is possible to withdraw a Pension Commencement Lump Sum (PCLS), more commonly referred to as ‘Tax Free Cash’ of 25% and then subject to your requirements, further withdrawals could be made at the basic rate of tax. This may further improve the tax advantages of the pension contributions. As, had they been withdrawn from the business as salary or dividends previously, they may have attracted the higher or additional rate of tax. If you have any questions relating to this article, I would encourage you to speak with a financial adviser who will analyse both your personal and your company’s situation to recommend a suitable course of action. Taxes Reduction in Corporation Tax payable *tax payable dependent upon individual tax status You Receive Limited Company pays out Pension Dividend £1,000 £1,000 £0 £75 - £325* £1,000 into your pension £925 - £675* in cash £190 Adam served for 16 years as an Infantry officer, qualifying as a financial adviser during his resettlement. Since leaving regular service in 2019, he has worked at Prosperity Wealth, a leading West Midlands independent financial advice firm. In June 2019, Prosperity Wealth signed the Armed Forces Covenant and were awarded the Bronze Award of the Employer Recognition Scheme (ERS). Prosperity Wealth provide specialist financial advice to the military community using the www.military-prosperitywealth.com website. They are able to support individuals and businesses throughout the UK, so regardless of your current or future location, Prosperity Wealth/Military are able to support you and your business, now and in the future. Should you have any questions, please email military@prosperitywealth.com.