Tax and contracting News

The future, according to some scientists, will be exactly like the past - only far more expensive.

Self-Employed to Benefit from Pension Reform

15 - 01 - 2013

The self-employed will be ‘unequivocally better off in the long run’ thanks to a new flat-rate state pension, according to Paul Johnson, director of the Institute For Fiscal Studies (IFS).

Currently, there are two state pensions in Britain. The first is a basic state pension based on 30 years of National Insurance contributions and the second is a state earnings-related pension called the State Second Pension.

 

The new pension scheme, which was outlined in a White Paper on Monday and is likely to come into force in April 2017, will merge the state second pension with the basic state pension, to create one flat-rate payment.

 

According to the Department of Work and Pensions (DWP), 4.2 million self-employed people are prevented from getting a full state pension under the current system. However, the new single tier system will mean that millions of self-employed workers will be entitled to the full state pension for the first time.

Under the current scheme, recipients get a basic pension of £107 with additional means-tested top-ups. From April 2017, pension payments will go up to a flat-rate payment of £144 a week.

 

However, people will have to make 35 years’ worth of National Insurance contributions, instead of the current 30, to be entitled to the full pension.
Anyone who qualifies for their pension before April 2017 will receive their entitlements under the current system.

 

 

‘Much-needed shake-up’

Joanne Segars, chief executive of the National Association of Pension Funds, supports the simplification of the pension system.

‘Today’s announcement for a simpler, more generous state pension is a much-needed shake-up that will ultimately help millions of pensioners and savers. For the first time in a generation, people will know that it pays to save, and that whatever they put aside won’t be eroded by means-testing when they retire,’ she said.

 

 

‘Complex pattern of winners and losers’

However, not everyone will benefit from the reform. Those entering the workforce now are likely to receive less than they would have under the current system.

Rowena Crawford, senior research economist at the IFS, acknowledged that proposed scheme is not all good news but noted the equality the reform will bring for the self-employed.

‘While there will be a fairly complex pattern of winners and losers from the reform in the short-term, the main effect in the long run will be to reduce pensions for the vast majority of people, while increasing rights for some particular groups – most notably the self-employed,’ she said.

Play the Numbers

Instant comparison between the forms of business; see the effects of legitimate expense claims, consider Flat Rate VAT or just adjust hourly rates and time spent. Look for your personal jackpot.

Help me decide

Talk to Us

Of course in the end there is no substitute for targeted personal advice. Your individual circumstances matter. You need our expertise. Get a free initial consultation – probably the best freelance decision you will make!

Help me decide

Instant Information

Our tax calculator is speedy. It is designed to give you results as you enter valid data – on the spot, in front of your eyes! We update regularly to make sure it always reflects changes in tax law and practice.

01244 625 500

Fixed Data

Assumptions

General                                                                                                                              

• The user is over 21 and subject to tax in the UK
• The user wishes to minimise their tax liability
• The user is subject to national insurance i.e.he/she is not over retirement age
• Only current tax rates and limits are applied
• No tax mitigation payments are made e.g. pension contributions
• Only 3 digit letter 'L' tax codes shown in the drop down list can be entered 
• The user does not have a turnover greater than £100,000 where fewer reliefs and or higher taxes may apply

Expenses

• All miles claimed as expenses are for business use using a personally owned car or van
• All other expenses claimed are wholly, necessarily and where appropriate exclusively for the benefit of the business

Foremans LLP Charges

• Foremans fees associated with Limited Company, Sole Trader or Umbrella are as per published rates
• Foremans current Service Costs are allowed for in all calculations.

Holiday Pay

• Holiday pay is accumulated week by week by Umbrella or Agency employer but paid out during the year

VAT

• Limited Company or Sole Trader will be VAT registered
• Limited Company or Sole Trader will take advantage of Flat rate VAT
• Flat rate applied includes the benefit of the additional 1% applicable to the first year of VAT registration

Limited Company Conditions

• One director / one shareholder in a Personal Service Company
• Director of Personal Service Company elects to vote for 100% dividend after salary, costs and expenses
• Director's salary is maximum salary to the primary threshold for NI
• The Limited Company is trading normally i.e it is not subject to IR35 and is not a Managed Service Company

NOTES

• The Current tax rates are taken from the Fixed Data Table
• The current Value Added Tax Rate is 20% and is applied to all invoices and expenses as appropriate
• The Director's Salary is fixed in relation to National Insurance thresholds. Higher Rate Taxpayers should consider the advantages and disadvantages of a larger annual salary or bonus
• Higher Rate Taxpayers may wish to consider the advantages and disadvantages of shared ownership of their business
• Users with a tax code other than three digits and letter "L" may telephone or email our Development Department to request a detailed calculation
• Generally the use of an Umbrella rather than an Agency payroll is only efficient if sufficient weekly expenses are allowable and claimed
• The expenses claimed under an Umbrella should not prevent the proper operation of National Minimum Wage