The government has become concerned that the UK’s workforce is not putting enough away for their later years. As a result, the automatic pension enrolment scheme has come into force, making it mandatory for employers to enroll eligible workers into a workplace pension. It started being implemented in October 2012, and all firms should be operating under this scheme currently. But as a contractor how exactly will these changes affect you?
What is automatic pension enrolment?
The automatic pension enrolment scheme means it is compulsory for employers to automatically enrol all eligible employees in a pension scheme, although employees do have the option to opt out if they wish. To be eligible for auto-enrolment employees must be:
- Aged between 22 and State Pension age
- Earn more than £10,000 a year
- Work in the UK
How will automatic pension enrolment affect limited company contractors?
If you are operating as the sole director and employee of your own limited company then, somewhat unusually, auto-enrolment will not ordinarily apply to you. Unless there is a contract of employment in place then you are not classed as a ‘worker’ and you can advise the Pensions Regulator that your company is not classed as an employer for the purposes of the workplace pension.
You may still wish to make pension contributions and by far and away the easiest option is to arrange to make direct employer contributions into your pension fund. Provided these are deemed to be wholly and exclusively for business purposes, these would be an allowable company expense.
How will automatic pension enrolment affect umbrella company contractors?
If you are contracting through an umbrella company, you are classed as an employee of the umbrella company that you are working under. Umbrella company contractors will be automatically enrolled in a pension scheme in the same way that employees will be, but you do have the option to opt out of the scheme.
For more information about auto enrolment or the best options for making pension contributions, get in touch.