Advice please about minimising tax payable on self employed income

[Member869894]

I'm about to give up my fixed job to look for locum work which pays at £52 an hour over a 37.5 hour week. I intend to go through an agency that sorts out my pay through some sort of 'umbrella company' (got to read up on that!)

I have very little pension - will monthly payments into a private pension reduce my gross income for income tax purposes? I would like to put as much into a pension as possible . I'm 57 so running out of time!

I think there's an annual tax free allowance of £60k, if you wanted to pay in more you can but the tax relief tapers off. You can pay as much of your salary as you like, there are no caps.

If you're self employed you also get a Govt contribution (to compensate for not having employer contributions), I'm not sure exactly how much this is. These are part of the 60k, not in addition to.

My knowledge is very limited though so check what I've said!

TeenagersAngst thank you

I’m working as a locum and I’ve only made a few payments into my pension but my accountant took it off my tax bill. I was quite shocked to find out I have to pay 50% of the next years tax bill upfront though! I don’t think you need an umbrella company. I’ve just registered as self-employed with HMRC.

I think you need to Google IR35, especially as it relates to NHS work. It's basically meant that you can't be "self employed" for tax purposes if the reality is that the work you do is more akin to employment rather than self employment. You need to prove that you're genuinely self employed and many employers, particularly the NHS, now operate a blanket policy of not paying people on a self employed basis, but via an umbrella/agency instead with tax/nic deductions made on your payslip.

Under an umbrella, your pension payments will probably be paid via salary sacrifice so they are deducted from your gross wage, so not only do you save income tax, you also save both employer and employee NIC (as an umbrella employee you pay both!). You'd have to check with the umbrella company.

By the way, being paid via an umbrella means you're actually an employee and not self employed.

It’s not NHS. It’s through an agency. It’s fine.

IR35 applies to all employers now except the smallest.

I am also doing locum work via an agency and it is outside of IR35 in my case. I spoke to my accountant and researched about umbrella companies. Umbrella companies take a huge cut and for me it was much easier and economically sound to Set up a ltd company and pay myself through that and pay pension contributions into my private pension.

I would advise speaking to an accountant - accountant fees can be claimed as a business expense too. It cost me about £20 to register a company, I had to pay for indemnity insurance (can claim back cost) and set up basics such as email and invoice preform and open a business bank acc (revolute was incredibly easy and all online). All done in an afternoon.

There are lots of online calculators that help you compare Ltd Co v Umbrella like this one