Financial planning for a Contractor
Discussion
Hello all. I am looking for a bit of guidance.
I am in my mid 40’s and work as a Mechanical Engineer, working as a sub-contractor through a limited company. I have spent all of my spare income over the last few years building a house, and as such, I haven’t put any money into a private pension or similar. I have never had a works based pension so at the moment my financial planning for my future retirement is to sell my big expensive house and move to something much smaller in a cheaper area, living off of the surplus from the house sale, coupled with mine and my wife’s state pensions. She is a low earner and, although she does have various pensions from old jobs, I doubt they amount to much.
As I don’t like the thought of all of my “wealth” being in one asset, my question is, can I pay into some sort of fund or pension (index linked fund or SIPP etc.) directly from my limited company to avoid paying corporation or personal income tax on my contributions, effectively managing my own company pension scheme? What are the implications of this?
Is it worth doing this through a financial advisor or can I just do it myself? I’m not against using an FA but if I don’t need to then I think I’d rather do things myself. My accountant said that he thinks that I have to use an FA to start a pension, but as I seem to be able to go online and open a SIPP as a private individual, I don’t see why this should be the case.
Has anyone done anything similar?
I am a bit of a dunce when it comes to finance (hence, the lack of any current private pension provision) so please reply in words of one syllable or less. Many thanks.
I am in my mid 40’s and work as a Mechanical Engineer, working as a sub-contractor through a limited company. I have spent all of my spare income over the last few years building a house, and as such, I haven’t put any money into a private pension or similar. I have never had a works based pension so at the moment my financial planning for my future retirement is to sell my big expensive house and move to something much smaller in a cheaper area, living off of the surplus from the house sale, coupled with mine and my wife’s state pensions. She is a low earner and, although she does have various pensions from old jobs, I doubt they amount to much.
As I don’t like the thought of all of my “wealth” being in one asset, my question is, can I pay into some sort of fund or pension (index linked fund or SIPP etc.) directly from my limited company to avoid paying corporation or personal income tax on my contributions, effectively managing my own company pension scheme? What are the implications of this?
Is it worth doing this through a financial advisor or can I just do it myself? I’m not against using an FA but if I don’t need to then I think I’d rather do things myself. My accountant said that he thinks that I have to use an FA to start a pension, but as I seem to be able to go online and open a SIPP as a private individual, I don’t see why this should be the case.
Has anyone done anything similar?
I am a bit of a dunce when it comes to finance (hence, the lack of any current private pension provision) so please reply in words of one syllable or less. Many thanks.
Do you work as a Sole Trader or via your own Limited Company or a Partnership?
You absolutely can set up a SIPP or Personal Pension yourself & I'd be a bit worried about an accountant who said you needed a FA to do it. If you're happy to do a bit of work then you can save yourself a fair bit, but you might consider the benefit of some financial planning.
Paying into a pension via your limited company is very tax/NI efficient so it's almsot certainly worth doing, although it should form part of your overall planning which might include other forms of saving such as ISAs & emergency funds.
You absolutely can set up a SIPP or Personal Pension yourself & I'd be a bit worried about an accountant who said you needed a FA to do it. If you're happy to do a bit of work then you can save yourself a fair bit, but you might consider the benefit of some financial planning.
Paying into a pension via your limited company is very tax/NI efficient so it's almsot certainly worth doing, although it should form part of your overall planning which might include other forms of saving such as ISAs & emergency funds.
Yes pay them from your Ltd Co via Employer contributions...so before Corp Tax is calculated. Very tax efficient.
Up to you to how you invest, but I'd go direct to Vanguard with a SIPP and invest in a low cost Life Strategy 80 or 100, you don't need an FA.
eta
make the Mrs a Director and pay some into a SIPP in her name...your accountant can advise.
Up to you to how you invest, but I'd go direct to Vanguard with a SIPP and invest in a low cost Life Strategy 80 or 100, you don't need an FA.
eta
make the Mrs a Director and pay some into a SIPP in her name...your accountant can advise.
I contract through an Ltd and used a financial advisor to start up a SIPP for me. The pension is run by Novia and is currently invested in Vanguard LifeStrategy 100 - the fees are low but I'm not sure how much value I'm getting from the FA because the don't deem me important enough to speak to anymore since they don't have their hands on enough of my money.
Have considered transferring to an online option, but since I'm paying the FA less than £100/yr and the transfer fees I've not gone very far with this idea.
Have considered transferring to an online option, but since I'm paying the FA less than £100/yr and the transfer fees I've not gone very far with this idea.
Mr Pointy said:
Do you work as a Sole Trader or via your own Limited Company or a Partnership?
You absolutely can set up a SIPP or Personal Pension yourself & I'd be a bit worried about an accountant who said you needed a FA to do it.
Yes, working through my own limited company.You absolutely can set up a SIPP or Personal Pension yourself & I'd be a bit worried about an accountant who said you needed a FA to do it.
I have been using my accountant for 12 years and I have always found him to be great. However, i was very surprised when he said this, although he did also admit that it wasn't an area that he got involved with very often.
Greshamst said:
Excuse my ignorance but what benefit is there in having Novia run your pension, rather than just investing directly into a SIPP with vanguard?
None at all - I don't think I'd have even known because the FA arranged it all and you have to write to them to request access to the online portal (something I did). It's something that I ought to sort!ecs said:
I contract through an Ltd and used a financial advisor to start up a SIPP for me. The pension is run by Novia and is currently invested in Vanguard LifeStrategy 100 - the fees are low but I'm not sure how much value I'm getting from the FA because the don't deem me important enough to speak to anymore since they don't have their hands on enough of my money.
Have considered transferring to an online option, but since I'm paying the FA less than £100/yr and the transfer fees I've not gone very far with this idea.
For what it's worth I would definitely check how much you're paying in fees.Have considered transferring to an online option, but since I'm paying the FA less than £100/yr and the transfer fees I've not gone very far with this idea.
Vanguard are really cheap and solid but I wouldn't be surprised if you're paying 0.22% for the investments themselves and "something" quite a bit more for the IFA and Novia.
Your Accountant probably has a deal going with the FA to take on this type of work..... They're scratching each others back and working on the principle most people have no idea about this stuff.... I fell into this trap when I first started contracting back in 1996 and needed a mortgage. Accountant put me on to a FA who set up a Buy-to-let mortgage (without 3years books) so I could buy a new house, income protection (which according to the small print I could never use) and a pension I couldn't really afford. The FA made a shed load on the Commission and always bragged about his flat in London and his new Ferrari.
Set up a SIPP on your own and set one up for the misses. Make sure your misses get's paid enough that your don't pay Higher Rate tax. Make sure she earns her salary (menial role in the business). Any spare cash, put in the pension tax free.
Tax dodging is illegal, Tax avoidance isn't.
Set up a SIPP on your own and set one up for the misses. Make sure your misses get's paid enough that your don't pay Higher Rate tax. Make sure she earns her salary (menial role in the business). Any spare cash, put in the pension tax free.
Tax dodging is illegal, Tax avoidance isn't.
Thanks everyone for the advise so far.
super7 said:
Set up a SIPP on your own and set one up for the misses. Make sure your misses get's paid enough that your don't pay Higher Rate tax. Make sure she earns her salary (menial role in the business). Any spare cash, put in the pension tax free.
Does it need to be a SIPP. I only mentioned that as a product that I am aware of. Could it be something else, like an index linked fund? I only mention this as I have a friend who puts money into a similar fund (not through a limited company) and he does seem to get very good returns.A sipp is a "wrapper" or a container . It contains investments, funds and the likes which you've invested in, and by using a sipp you get tax breaks on the money going in and on the return generated(for as long as it remains in the sipp , once you're old enough to start taking it out then tax limits apply).
Some of your process questions on how payments can be made via limited company etc can be answered by:
https://www.vanguardinvestor.co.uk/what-we-offer/p...
Other options available although vanguard scrub up well when doing research and they're cheap so easy to go direct.
You mention index linked I presume you mean a passive index tracker, where the fund follows an index rather than trying to "beat the market" via a actively managed (and more expensive). Vanguard are good for these.
Have a look at investing demystified: https://youtu.be/gM4KEJQ_Z5U
Some of your process questions on how payments can be made via limited company etc can be answered by:
https://www.vanguardinvestor.co.uk/what-we-offer/p...
Other options available although vanguard scrub up well when doing research and they're cheap so easy to go direct.
You mention index linked I presume you mean a passive index tracker, where the fund follows an index rather than trying to "beat the market" via a actively managed (and more expensive). Vanguard are good for these.
Have a look at investing demystified: https://youtu.be/gM4KEJQ_Z5U
Edited by deebs on Wednesday 5th January 14:01
BIG MOLE said:
I have been using my accountant for 12 years and I have always found him to be great. However, i was very surprised when he said this, although he did also admit that it wasn't an area that he got involved with very often.
You might just find he's being overly cautious. If he's not a regulated financial adviser then if he tells a client to set up a SIPP and it all goes wrong then there is an argument to say he's on the hook. Better/ easier just to point you in the direction of an IFA. BIG MOLE said:
Does it need to be a SIPP. I only mentioned that as a product that I am aware of. Could it be something else, like an index linked fund? I only mention this as I have a friend who puts money into a similar fund (not through a limited company) and he does seem to get very good returns.
The SIPP is the tax wrapper, the fund is the investment that sits inside the SIPP, don't get them mised up...maybe do some learning on youtube.It needs to be a Pension Plan (either managed or self-invested) to get the Tax breaks....
Say for example your employer (your'e Ltd company) gives you a bonus (instead of a Dividend) and you sacrifice that bonus to your SIPP, then you don't pay tax on that... the IR give you 25% of that (or whatever your tax rate is) back so you invest 100% of the Bonus into your SIPP not just a bit of it.
Say for example your employer (your'e Ltd company) gives you a bonus (instead of a Dividend) and you sacrifice that bonus to your SIPP, then you don't pay tax on that... the IR give you 25% of that (or whatever your tax rate is) back so you invest 100% of the Bonus into your SIPP not just a bit of it.
Edited by super7 on Wednesday 5th January 14:31
Abdul Abulbul Amir said:
BIG MOLE said:
Does it need to be a SIPP. I only mentioned that as a product that I am aware of. Could it be something else, like an index linked fund? I only mention this as I have a friend who puts money into a similar fund (not through a limited company) and he does seem to get very good returns.
The SIPP is the tax wrapper, the fund is the investment that sits inside the SIPP, don't get them mised up...maybe do some learning on youtube.I have a SIPP, ISA and a normal investment account. All hold funds, often the same ones.
The SIPP (and ISA) are just tax wrappers with a few rules attached.
super7 said:
It needs to be a Pension Plan (either managed or self-invested) to get the Tax breaks....
Say for example your employer (your'e Ltd company) gives you a bonus (instead of a Dividend) and you sacrifice that bonus to your SIPP, then you don't pay tax on that... the IR give you 25% of that (or whatever your tax rate is) back so you invest 100% of the Bonus into your SIPP not just a bit of it.
I think what he is trying to say is, just make an employer contribution from your ltd company to your pension plan and it won't attract any deductions for Tax or NI. It will also reduce your corporation tax as well as it is deducted before that is calculated. If you haven't paid anything into a pension plan yet you will also be able to go back 3 years to use make use of your unused annual allowance, and so pay up to £120,000 into it this year.Say for example your employer (your'e Ltd company) gives you a bonus (instead of a Dividend) and you sacrifice that bonus to your SIPP, then you don't pay tax on that... the IR give you 25% of that (or whatever your tax rate is) back so you invest 100% of the Bonus into your SIPP not just a bit of it.
Edited by super7 on Wednesday 5th January 14:31
YouWhat said:
I think what he is trying to say is, just make an employer contribution from your ltd company to your pension plan and it won't attract any deductions for Tax or NI. It will also reduce your corporation tax as well as it is deducted before that is calculated. If you haven't paid anything into a pension plan yet you will also be able to go back 3 years to use make use of your unused annual allowance, and so pay up to £120,000 into it this year.
£160kPretty much what I said post 3.
98elise said:
Abdul Abulbul Amir said:
BIG MOLE said:
Does it need to be a SIPP. I only mentioned that as a product that I am aware of. Could it be something else, like an index linked fund? I only mention this as I have a friend who puts money into a similar fund (not through a limited company) and he does seem to get very good returns.
The SIPP is the tax wrapper, the fund is the investment that sits inside the SIPP, don't get them mised up...maybe do some learning on youtube.I have a SIPP, ISA and a normal investment account. All hold funds, often the same ones.
The SIPP (and ISA) are just tax wrappers with a few rules attached.
YouWhat said:
98elise said:
Abdul Abulbul Amir said:
BIG MOLE said:
Does it need to be a SIPP. I only mentioned that as a product that I am aware of. Could it be something else, like an index linked fund? I only mention this as I have a friend who puts money into a similar fund (not through a limited company) and he does seem to get very good returns.
The SIPP is the tax wrapper, the fund is the investment that sits inside the SIPP, don't get them mised up...maybe do some learning on youtube.I have a SIPP, ISA and a normal investment account. All hold funds, often the same ones.
The SIPP (and ISA) are just tax wrappers with a few rules attached.
To add some advice to the OP, I have II accounts for ISA, SIPP and trading, three separate accounts. I can pay into the ISA from my own money £20k a year, £40k into the SIPP from my limited company as Employer Contribution. This means that the £40k SIPP contribution effectively becomes free from Corporation tax, very tax efficient for me.
Once you have the money added to your ISA and/or SIPP accounts, you can decide where to invest it. I use a selection of funds and spread the money around so it's not all in 1 basket. The funds I've selected have mainly returned between 15-25% this last year or so, my funds are averaging about 20% up in this time.
You can also invest in shares directly if you wish, I have some Rolls Royce shares for example that have done nicely, and some BP which haven't so much.
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