Is the Workplace Pensions monster hunting contractors?
When the Workplace Pensions monster first appeared on our TV screens, many people thought it was a bit of a joke. But the more people saw it, the more they began to see that the DWP were serious about their furry representation of the new scheme. I’m not going to go into the ‘whys and wherefores’ explanation here, but suffice to say that Workie (that is its name) is interested in contractors – unless you have opted out.
The basic facts are that if you are a contractor running your own Personal Services Company (PSC), that only employs a Director (or Directors) you still need to actively opt out of the Workplace Pensions scheme – or be accountable to it. This is easily done, all you need to do is register with the pensions regulator.
You can avoid the monster but don’t avoid the issue!
Unless you are working purely for fun and already have several million tucked away for your retirement, it would still be wise to invest in your ‘post-work’ future – monster or no monster. That doesn’t mean to say that it has to be a pension in the traditional sense: there are lots of smart options when it comes to planning ahead financially.
Before looking at some of them, however, I would also point out that any ‘director’ of your PSC business is legally responsible for the finances within it. So, they should be included in any decisions you take about what to do with investment funds – and have access to the accounts.
Planning for the future – as a contractor.
If you are fortunate enough to be able to restrict the money you take out of your PSC, so that you can keep below tax thresholds, you will be building up excess funds in the business. It may be an obvious place to start: but leaving money in a low-interest savings account might be safe – but is it wise? To make the most of your capital and ensure a better quality of retirement future you need to make your money work for you. Then, when your profits are creating their own income, you can put that into your pension.
Using your company to accrue funds is smarter than withdrawing it as dividends because you only have to pay the 20% corporation tax and avoid the 40% personal tax (for higher rate payers). This also enables you to put more into your pension pot, directly, as there are limits to what an individual can pay into their scheme. That way you also reduce the amount of tax due by the business itself.
Like I always say, get some expert assistance about the best ways to actually invest your money. Smart advice from people you can trust should always pay for itself many times over. You accountant is a good place to start, and in all truth, they should be offering you the advice proactively – not waiting for you to ask!
Here are a few ideas to consider:
- Investment schemes, ISAs, etc
- Property portfolios
- Guidance from financial advisors
- Wealth management planning
- Crowdfunding investment (such as our partner scheme: Propetieer)
Get in touch if you’d like to discuss your own situation. If I can’t help I’m sure to know someone that can.