Self-Employed eCommerce Pensions: Legal Options and Considerations 

When you run your eCommerce business, you will have to make many payments when you carry out your business activities. For example, you will need to pay your web hoster and for services provided for your internet brand, such as social media marketing. Other costs for your business may include employee salaries and, of course, your salary as a self-employed worker. However, one payment you may have yet to consider is your own pension contributions for a private pension. Like other self-employed people, this may be low on your list, particularly as a small business owner. However, providing yourself a personal pension is essential for later life, but there are rules you should know. This article will explain self-employed pensions in terms of legal options and considerations.

What is a Pension?

When working and earning, a pension is the money you put aside as savings for your future retirement. Unlike other work income, this money can have tax relief attached to it, meaning a pension can be a form of tax relief. The tax relief is usually 20%, but this usually increases if you pay a higher tax rate. There are no National Insurance charges on your pension contributions.

When you draw on your pension later in life, you can usually take 25% as a tax-free lump sum.

What are the Legal Requirements Related to Pensions?

There are legal requirements for you as an eCommerce business owner regarding pensions if you are an employer and have staff. In this case, you must sign up for the government’s auto-enrolment scheme. This allows your employees to have a pension if they choose to. An employment solicitor can help you to understand this.

Whilst you have obligations as an employer when you are an eCommerce business owner regarding your employees and pensions, you are not required to offer yourself a pension as a self-employed individual. If you choose to have one and want tax relief,  you must apply for your pension tax relief from HMRC through your Self-Assessment.

Pensions and Tax Relief

Historically, the self-employed, such as you, are less likely than employees to contribute to a pension. As a sole trader, you will use your net profits to contribute. Also, the government may give you tax relief if you contribute towards a pension as a self-employed eCommerce sole trader. You can claim a portion of what you contribute through your tax return. As a basic rate taxpayer, this equates to 20%, and you can claim more if you pay the higher tax rate.

However, if your eCommerce business is set up as a limited company, your pension contributions will usually arise from your turnover. This is a business expense. However, you do not get tax relief on your pensions; instead, you will pay less corporation tax for your business. 

Can I Get the State Pension?

Whilst there are no legal requirements for you as an employer to have a pension, you may be legally entitled to the State Pension. This is provided you have made complete National Insurance (NI) Contributions for ten qualifying years. 

For 2024-25, the State Pension you can receive is up to £221.20 per week, equating to £ 11,502.40 annually. To be entitled to the full State Pension, you must usually have 35 qualifying years.

What is the ‘Carry Forward’ Rule?

Whether you are a self-employed eCommerce business owner like yourself or one of your employees, you get the same annual allowance for tax-free pension contributions. This is currently £60,000 each tax year. However, as a self-employed person, you have the advantage of the carry-forward rule, which means that if you did not use up your annual allowance over the previous three tax years, you can use it in the current tax year. 

Key Takeaways

A pension is money which a person contributes towards during their working life.  It can incur tax relief and does not include National Insurance contributions. If you employ staff, you have to provide a pension scheme to them by signing up for the Government’s auto-enrollment scheme. However, there is no legal requirement for you as a self-employed eCommerce business owner to provide yourself with a pension. However, if you do as a sole trader, this will come from your net profits and has tax relief associated with it. If you are a limited company, it usually comes from your turnover, with no tax relief, but you will pay less corporation tax. 

If you need help understanding pensions in the UK, our experienced eCommerce lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. So call us today on 0808 196 8584 or visit our membership page.

Frequently Asked Questions