Paying into your pension

When you run your own business it is important to think of the future. When you are employed you have the security of a pension. So what are your options as a Limited Company owner? Here we take a look.

The options

There are two options for making pension contributions when running your own Limited Company.

The first is by making personal contributions. The second is by making employer contributions from your Limited Company.

Both come with their own advantages and tax savings. Choosing the right option will depend on your own circumstances.

Personal pension contributions

HMRC give tax relief for personal pension payments at the rate of tax you pay. As a basic rate taxpayer a £100 contribution is worth £125 into your pension pot.

You can pay in as much as you like but there is a limit of 100% of your income up to £40,000. Anything over this would not be eligible for tax relief.

If you earn £3,600 a year or less, then the maximum contribution is £3,600 including the HMRC relief.

By taking salary and dividends you are likely to be tax efficient and take home more of your hard earned cash. But this does bring an implication on the personal pension contributions you can make. Dividends are not classed as relevant UK earnings, so only your salary is used to work out your maximum pension relief.

Employer pension contributions

You can make contributions into your pension directly from your Limited Company. These employer contributions are treated as an allowable expense and receive corporation tax relief.

To satisfy HMRC you must be able to demonstrate that other employees are receiving comparable remuneration packages.

You will also benefit by not having to pay National Insurance on the pension payment – this would not be the case if you choose the personal contribution via salary.

How your Taxevo accountant can help

Pensions can be complicated, and when you’re busy running your own business you’ll want to rest assured, knowing your accountant has got your back. The team here at Taxevo are able to offer you expert advice on pensions, along with free financial advice that’s specific to your personal and business needs, all included in your monthly fee. If this sounds like the type of support and advice you need from your accountant, get in touch to find out more.