Pension contributions through your Limited Company provide substantial tax benefits. In the UK, pensions are deemed an allowable expense by HMRC and thus can be compensated against your Corporation Tax bill.
There are two ways to contribute to your pension:
- By making individual contributions
- By making direct contributions through your Limited Company
Both choices have tax benefits and depending on the situation, one may be more favourable than the other.
Contributing to a personal pension – the tax implications:
Every payment you make into your pension is tax-deductible and the amount determines the rate of income tax you pay.
For example, if you are a basic rate taxpayer and you pay £100 into your pension, you will save a total of £125 after tax relief is applied.
Nowadays, you can contribute 100% of your taxable income up to a maximum of £40,000.
If you earn less than £3,600 per year or have no income, you can make pension contributions of up to £3,600 per year.
Making contributions to your pension as a director of your Limited Company – what are the tax implications?
Getting a moderate salary and dividends is the best way to reduce your tax liabilities and maximise your take-home pay, but it isn’t the best way to increase your pension because dividends aren’t considered ‘relevant UK earnings.’
Therefore, the best way would be to make pre-tax contributions to your pension through your Limited Company that count as allowable expenses. This enables your company to receive tax relief against Corporation tax, whereby you could save up to 19% in Corporation Tax in the current tax year.
How Price & Accountants can Assist?
Our accountants based near Liverpool Street Station, London can provide our clients with tailored advice and support in all tax-related issues and tax planning. This is a fabulous reason to be a client of Price & Accountants! Get in touch with our team right away to learn more.