High earning freelancers 'can work round new tax rules'

High earning contractors working as sole traders or limited companies are being urged to look for ways around new tax relief rules proposed by the government.

Many contractors have used the pension contribution rules in the past to reduce their tax bill but this will change when new legislation begins in April 2011, Tony Harris, an independent financial advisor from Shout99, explained.

The government's new laws, unveiled by Alistair Darling, chancellor of the exchequer, in his Budget earlier in the year, mean that contractors earning over £150,000 a year will have the tax relief on their pension contributions capped up.

Mr Harris said: "We would advise that you seriously consider setting in motion a regular investment for the new trading year to not only maximise the reduced tax break still available but hopefully also to safeguard the right to continue contributions should the rules change again."

This is due to pre-existing regular pension investment being exempt from the new legislation, he commented.

According to the treasury, 230,000 people in the UK will be affected by the changes.