A WORCESTER accountancy firm has warned that the new method of paying personal pension premiums could have a significant impact on the cash flow of self-employed people.

Rabjohns Business and Tax Advisers, of College Yard, said that since the introduction of Stakeholder Pensions in April this year, all personal pension premiums were now paid net of basic rate tax at source.

Prior to this, the self-employed paid their premiums gross and received tax relief through their self-assessment tax return.

"In most cases, this meant the amounts of tax they paid, as payments on account, were reduced," said Robert Fearon, personal tax manager and chartered tax adviser with Rabjohns.

He said taxpayers who were busy completing their tax returns for the year ended April 5, 2001 - in time for the submission deadline of January 31, 2002 - would be filling in the last return where pension premiums were paid gross without a tax deduction.

"The tax liabilities calculated for that year will form the basis for any payments on account due in January 2002 and July 2002," continued Mr Fearon.

"Tax relief for 2001/2002 will therefore be received on pension payments by the self-employed in January and July 2002, as has always been the case.

"However, because the premiums are now paid net of tax relief at source, there is the potential for the relief to have been given twice.

"The Inland Revenue will recover this excess relief in January 2003 in the balancing payments taxpayers need to make.

"This could have a significant impact on the cash flow of the self-employed as they will be required to repay approximately 22 per cent of their pension premiums to the Inland Revenue."