I just opened a SIPP as a contractor. Now what?

Contractor’s Question: I have opened a Self-Invested Personal Pension with Hargreaves Lansdown but should I put money into this SIPP account from salary that’s already been taxed?

I’ve heard I can get SIPP tax relief from the government, but how does it work? Also, can I put the money into my SIPP account for previous years I have missed? If so, how does the tax relief work? Any advice is appreciated.

Expert’s Answer: Thanks for the question(s).

I will include some links in my answer to some articles already on ContractorUK which I’ve penned, that may help to provide you with additional information.

Sadly, I can’t be specific in my answers as much of the information you’re seeking will depend on your personal circumstances, of which I would need a lot more information before I could advise you properly.

With pensions, the tax relief principle is always the same…

But perhaps I can help a little!  

A SIPP is simply a type of pension.

There are many types of pensions, such as personal pensions and stakeholder pensions. Pensions vary in their features, but the tax relief principle is always the same – with all pensions!

Pensions contributions: explainer

In short, contributions to a pension will provide tax relief to you at your highest rate of income tax. For example, if you are a 40% rate taxpayer, then you will be entitled to 40% relief.

Contributions can be made in two forms -- either personal or employer.

But only personal contributions will provide you with tax relief. Employer contributions provide tax relief to the employer.

Pension allowance: in a nutshell, you’ve got £60k

As for allowances, the overall allowance is £60,000 in this tax year (2024-25). This allowance includes personal and employer contributions.

The amount of the allowance available to you depends on your individual circumstances and the way it is funded (i.e. personal or employer.)

With a SIPP, the position of previous years be like…

As for using some of the previous years, again I can only manage a subjective and partial answer I’m afraid! And that’s this -- in principle, yes, pension savers can potentially use some of the previous years, but whether you could, would be subject to your circumstances and criteria being met.

I’m sorry for not being more helpful! But the three links below should help fill in some of the blanks you have about your pensions and retirement savings situation.

Contractor pensions guide x 3

Here’s the first link  -- it’s on contractor pensions generally.

Here’s the second link – it’s specifically for contractors like you who have a SIPP.

And third, here’s a similar situation to yours, insofar as a contractor with a pension is seeking some guidance – specifically, if they can get rid of income tax altogether!

You just qualified for a free ‘help me with my contractor pension’ consultation

Should you still not be sure after reading the above three articles, the very best thing you can do is seek financial advice tailored to your situation.

An adviser such as myself could look at your circumstances in the round and would be able to answer all your queries, assuming you can provide more detailed information.

You are welcome to reach out to me if you’re ready to talk through your personal position, and if you didn’t know, we offer a free initial consultation.

The expert was Angela James, founder of Yolo Wealth.