If your self employed, pension contributions can reduce your tax bill to £0

Can my business pay an unlimited amount into my pension?

An employer can pay any amount of pension contribution to one of their directors or employees, regardless of their salary.

How can this benefit me as a business owner?

If you are the director of a limited company and you are approaching retirement age you can pay in 100% of the net profits of your business each year into a registered pension scheme.

This pension contribution comes out of the business before corporation tax is calculated saving you 19% in corporation tax and then a further saving of either income tax or dividend tax.

The money in your pension is then 25% tax free and 75% taxed as income when you take it.

HMRC's view is that contributions to a registered pension scheme will normally be allowed and it would be 'relatively rare' for a pension contribution to be declined if it was for the purposes of the employers trade. (Source: https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim46030)

A contribution would not be allowable if there is an identifiable non-business purpose for the employer's decision to make the pension contribution or for the size of the contribution. If the local inspector thinks a contribution may not have been made wholly and exclusively for the purposes of the trade, he must report to a central Technical Team to ensure such cases are treated consistently.

For further information HMRC has issued guidance on tax relief on employer contributions.

Cheylesmore Chartered Accountants can provide expert advice and support to help you manage your pension contributions effectively, ensuring that you are taking advantage of all available tax relief and minimizing your tax liabilities.

Our services include:

Pension contribution planning: Our team of qualified accountants can work with you to develop a pension contribution plan that is tailored to your individual circumstances, taking into account your income, age, retirement goals, and other factors.

Maximizing tax relief: We can advise you on the most tax-efficient way to structure your pension contributions, including how much to contribute and when to make contributions. We can also help you take advantage of any available tax relief, such as the annual allowance and carry forward rules.

Pension scheme compliance: We can ensure that your pension scheme is set up and administered in compliance with the relevant regulations, including the auto-enrolment requirements and the annual allowance rules.

Pension scheme audits: Our team can carry out a detailed audit of your pension scheme to ensure that it is operating efficiently and that any risks or compliance issues are identified and addressed.

Ongoing support: We can provide ongoing support and advice on all aspects of pension contribution management, including changes to tax laws and regulations, investment performance, and retirement planning.

By working with Cheylesmore Chartered Accountants, you can be confident that your pension contributions are being managed effectively, ensuring that you are maximizing your tax relief and minimizing your tax liabilities. Contact us today to discuss your pension contribution management requirements and find out how we can help.