Starting in Business - Pension and Private Insurance

Self-employed people receive only the basic State pension in retirement and do not enjoy the pension benefits provided by many employers. It is therefore important to make additional provisions.

Personal Pensions

Personal pension contributions made by selfemployed people receive favourable tax treatment. Maximum advantage should be taken of the available relief.

From 6 April 2006

From 6 April 2006, an employer or employee can contribute an amount equal to the total of the employee’s salary and other earned income to their pension scheme and receive tax relief on the contribution - up to a maximum annual allowance of £245,000 and to a maximum lifetime amount of £1,750,000 for the tax year 2009/10. Any pension savings above the annual allowance will be taxable at 40%. Any pension savings above the lifetime allowance will be subject to a lifetime allowance charge.

Carry Forward of Unused Relief and Carry Back of Premiums Paid

From 6 April 2001:

• It is not possible to carry forward unused relief from previous years;
• To carry back contributions, an election to do so must be made before the premium is paid;
• Basic rate tax relief will be given by paying premiums net of 20% (2009/10) tax;
• For higher rate taxpayers, an additional 20% (2009/10 rate) tax relief will be given by including the claim for premiums in your tax return and thus reducing the tax payable to HMRC;
• In certain circumstances, unused relief can be used in the six years after a business has ceased.

Those taxpayers who prefer to make occasional large payments into their pension scheme, will have more difficulty doing so now that the carry forward relief has been abolished – however, payments into “old style” retirement annuity policies (taken out before 1 July 1988) are unaffected by the changes mentioned above.

Private insurance

Self-employed people, not being employees, are not covered under any employer’s sick pay, medical insurance or group life schemes; and few State benefits are available to them.

For these reasons, self-employed people should consider the following personal insurances when starting in business or at least as soon as profits and cashflow allow:

• Term life insurance. This is the cheapest type of death cover and can be for any number of years, for example, 10 or 15 years. There is normally no tax relief on the premiums paid. If the premiums are paid under a personal pension scheme, up to 5% of net relevant earnings could be paid each year and qualify for tax relief;
• Permanent health insurance. There is normally no tax relief on the premiums paid;
• Private medical insurance. There is normally no tax relief on the premiums paid;
• Spouse insurance. In addition, taxpayers should consider whether their spouses should be insured, particularly if they have young families.

• Here at Geoffrey Cole & Co., Chartered Accountants, Reading, Berks we have an extensive list of online resources available for FREE DOWNLOAD in our unique Info Vault.

• It is extremely important for all businesses to note that new and amended legislation may become applicable at any time.

Geoffrey Cole & Co Chartered Accountants & Registered Auditors offer a service that both encompasses and extends beyond the provision of traditional tax, auditing and assurance services. We believe in the value of an integrated approach to your financial needs and view a substantial part of our role as being that of business adviser. In this capacity, we work alongside you, helping you identify your immediate and long-term business objectives and plan for them accordingly. Communication is key and we maintain regular contact with clients in relation to their own affairs. Our IT capabilities are extensive: wherever possible your documentation will be prepared and processed electronically. Furthermore, as SAGE software suppliers and trainers our expertise with their business packages is second to none.

Our years of experience are reflected in the range of services we provide and our extensive client list.

Managing Director Geoff Cole says:
"Our aim, as Chartered Accountants, is to help you to achieve your personal goals and aspirations. Yes, we can deal with the compliance work such as audits, tax returns and the preparation of accounts but these are not the area of our principle focus"

“It’s about you.”