I am advising a self employed courier who needs to complete his accounts for self-assessment .
He currently pays £480 per annum ( 12*40) in personal pension contributions .
From what I can derive from HMRC guidance I do not think this is £480 is allowable against his profits but it is not
crystal clear .
I appreciate there is a tax benefit in making pension contributions ie 20% from his scheme , but seek clarification on
whether his contibution of £480 is allowable against his profits .
Thanks Kevin
Replies (3)
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Yes but not directly
Hi Kevin - the pension contributions are not treated as a business expense but instead the gross payments (£600) are allowed against business profits.
The way it works is that the £600 is added to the sum he is able to earn at 20%,before the 40% band kicks in, and so, because he's had 20% basic relief at source, there's only a reduction in his actual tax bill if he moves into the 40% tax band.
In other words if his taxable profits after personal allowance were say £50K his tax bill will effectively be reduced by another £120,so that he gets his full 40%.
tax return
The pension contributions will be drawings in the accounts. Any tax relief is claimed via his tax return.