Why Employer Pension Contributions make sense for a Company Director

If you are a company director and shareholder of your own trading company paying yourself employer pension contributions might make more sense than personal contributions…

Particularly if you’re receiving your income as salary and topped up with dividends?

Your personal pension contributions can’t be based on your dividend income. This is explained in our popular article Dividends and Pension Contributions.

How Employer Pension Contributions Work

Employer contributions are not limited to your salary.  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: It’s really important that you check that you qualify for the full Standard Annual Allowance. That you’re not restricted by either the Tapered Annual Allowance (which could reduce your annual allowance as low as £10,000) Or the money purchase annual allowance (which reduces your maximum contribution to £4,000)

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’re 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.

Want More Information? Check out these Related Posts on this Topic:
Dividends and Pensions – 2018/19
What is Carry Forward?

If you’d like some more help or information on this please call 0117 290 0370. We’ll schedule a 20 minutes call with Hilary Carden. Don’t worry, it’s free of charge and definitely no hard sell.

Alternatively you can email your contact details: 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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