Company Pension Contributions: Tax Savings for Business Owners

Do you run your own business? If so, it’s essential to know how to use your pension fund for tax planning. Most entrepreneurs keep more money in their business than personal accounts. They often pay themselves a small salary and use dividends to supplement their income. Keep in mind, dividends don’t count towards pension contributions. In this blog, we’ll delve into the role of company pension contributions in your financial planning.

Navigating Pension Contributions and Annual Allowance

Are you aware that a company’s pension contributions can exceed salaries? It just needs to meet the Annual Allowance limits. The Annual Allowance is £60,000 for the 2023/24 tax year, ending on 5th April 2024. Company pension contributions are free from employer (13.8%) and employee (12%) National Insurance. They are also not a taxable benefit.

The Tapered and Money Purchase Annual Allowances

For those earning over £200,000, you need to check if you qualify for the full Standard Annual Allowance. Your annual allowance could drop to as low as £10,000 in the 2023/24 tax year, due to the Tapered Annual Allowance. The Money Purchase Annual Allowance may also come into play if you’ve already accessed benefits from a pension scheme, potentially reducing your maximum contribution to £10,000.

Making Use of the Carry Forward Option

Carrying forward unused allowances is a strategy worth considering. It could allow your company to contribute more than the standard Annual Allowance.

Corporation Tax Relief and Pension Contributions

Company pension contributions often qualify as business expenses. This could provide corporation tax relief. But remember, HMRC (HM Revenue & Customs) must deem these contributions as exclusively for the business, not just for tax savings. If you’re unsure, it’s always wise to consult your accountant.

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Risk Warnings

This article and the information on this website is not personal advice. It’s only intended to give you a brief summary or highlight a particular issue for you to investigate further. It is based on our current understanding of legislation and HMRC guidance which can change and is correct as of the date of the post.

If you’re in any doubt whether a particular course of action is suitable for your circumstances, you should seek professional advice. Tax rules can change and any benefits depend on individual circumstances. And, if you are unsure any reliefs are applicable to you, you should consult your accountant or HMRC.

The value of investments and any income from them can fall as well as rise, so you could get back less that you put in. Past performance is not a guide to the future. It cannot provide a guarantee of the future returns of a fund.