When are Employer Pension Contributions right for a Company Director?
Are you a company director and shareholder? Is it your own trading company?
Are you taking your income as salary and then topping up with dividends?
Yes? If so this may be restricting your personal pension contributions more than you want. This is explained in our popular article Dividends and Pension Contributions.
How You Can Use Employer Pension 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 the 2018/19 tax year ending 5th April 2019.
(Note that your annual allowance may be less if you have taken any benefits or have income in excess of £100,00. It’s complicated 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.
Reduce your Company’s Corporation Tax
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 firstname.lastname@example.org