Employer Pension Contributions for a Company Director

Are you a director/shareholder and your employer is your trading company?

If so, you might receive your income in the form of salary and dividend. As explained in our article Dividends and Pension Contributions this may restrict your personal pension contributions more than you want.

Employer Contributions

Employer contributions are not limited to earnings, unlike personal contributions.  So in theory your employer contribution could be more than your salary, up to the annual allowance. The Annual Allowance is £40,000 for 2017/18.

(Note that your annual allowance may be less if you have taken any benefits or have income in excess of £100,00. It’s way too complicated to explain here so you should definitely check this).

In some circumstances it might be possible to use the carry forward unused allowance. This which would enable your employer to contribute more.

Unlike salary, pension contributions are exempt from employer (13.8%) and employee (12%) National Insurance. And they are not classed as a taxable benefit.

Corporation Tax Relief

An employer pension contribution is normally treated as an allowable business expense. So it can be set against profits for corporation tax relief (20%).

To qualify for relief, the contribution must be accepted by HMRC (HM Revenue & Customs) as ‘wholly and exclusively’ for the purpose of the business. Not simply for tax savings.

HMRC could question the contribution if your total salary and benefit package is excessive for the work undertaken. If you are unsure you should ask your accountant to advise you on this.

Your employer pension contributions can usually be paid into a personal pension such as a SIPP. Or a more bespoke directors’ pension scheme such as the Cardens SSAS.

If you’d like some more help or information on this please call 0117 290 0370. Ask to book a 20 minutes telephone consultation. Don’t worry, it’s free of charge and definitely no hard sell.

Alternatively you can email us with any questions at enquiries@cardens.co.uk

  • Hillary Carden

    Hilary is a force to be reckoned with in the pensions field. She founded Cardens in 1993 and Cardens Pension Trustees Ltd in 1995 and became one of the first women to become a Registered Life Planner® and with 30+ years experience of advising on and managing pension schemes, she really is an expert in retirement and financial planning.

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