Retirement planning as a contractor

Let’s face it, retirement planning isn’t the sexiest subject in the world and for a lot of people, it’s perceived as something that isn’t a priority in their life right now.

However, pension planning is a fantastic way of saving tax whilst helping you invest into your future.

Tax Efficient!

If you have surplus cash sitting in your company’s bank account, why not consider making a payment to a pension scheme?

This is because making a payment directly from the company will be treated as a taxable expense and directly reduce the amount of corporation tax payable.

Why not invest all the surplus?

The traditional model of extracting funds from your company is to withdraw a small salary and take additional amounts as dividends.

However, the amount of dividends you can withdraw from your company is dictated by the amount of profits it generates, after tax. Therefore if you put everything into your pension scheme, your corporation tax will be lower, but you will have less funds available, meaning less income available to extract.

Therefore, the key to maximising the benefit of your pension contributions is to find the right balance.  Ensuring you are putting enough money aside for your future but having enough funds available to take as dividends to meet your short term needs is a delicate balance.

Too Early?

When it comes to planning for your retirement, it is never too early to start and the more you put away now the more you will have in your retirement.

Posted by Chris Mollan