Deciding to become self-employed can be a nerve-wracking time for many people, but often, once you take the leap, you wonder how you ever did anything else. This is often because being your own boss offers you more flexibility, autonomy and a better work-life balance than when you are working for someone else. But what happens when retirement is looming?
You’ve worked all your life and you think it’s now time to start slowing down and reap the benefits of all your hard work, but now what do you do? Who do you need to tell and what will happen?
Below is some advice to help you decide whether it’s the right time for you to retire and what’s the best way of going about it.
When do you want to enter retirement?
Most people decide to start thinking about retirement when they approach the age when they can claim their state pension. Of course, there are other options, with many people choosing to retire early if they have accumulated their own private pension. As someone who is self-employed, you now have the same rights to the state pension as people who are employed by others.
This may or may not affect your decision as to whether to retire right now or wait a little while. Another option is to semi-retire, meaning you continue to work but usually with significantly reduced hours. This can be a good option if you are worried about how you will adjust to life without work as it will help to ease you into the retired lifestyle. With your extra spare time, you can take up new hobbies or even use the skills you’ve acquired during your working life to help others.
If you want to carry on working after you hit state pension age, you don’t have to pay National Insurance contributions. If you are doing this by being self-employed, you may still have to pay a small amount in Class 4 contributions during the first year you turn 65, but this change should still boost your income.
When you reach the qualifying age, you will start to be paid your state pension even if you are still working. It will be considered your income and will be taxable like any other earnings you bring in. The tax can be collected through a self-assessment tax return as normal for self-employed professionals.
Make sure you’re prepared
It’s recommended that you find out how much your pension will be six months before you want to retire or reach state pension age. This may be contacting current and previous pension providers you may have contributed to while you were employed or visiting the government website to get a state pension statement.
The Pension Service should then contact you around four months before you retire to tell you to claim your state pension. If they don’t get in touch, you can call them to make sure everything is in place, even if you are hoping to carry on working for a while.
What do you need to tell HMRC?
Four months before you want to retire, you should inform HMRC about the change. You’ll need to tell them about your income when you retire or reach state pension age so that they can adjust the tax, give you the right tax-free allowance depending on your situation and stop your National Insurance contributions.
Of course, there are a number of things you have to get in order when you are thinking about retiring, especially if you are self-employed. Getting advice from professionals like Brookson can help make this life-changing step easier and less stressful. We have a number of different types of services to support you throughout your career, including helping to make heading into retirement simpler.