Tax relief on pension payments for business owners
Should business owners make employer or personal pension contributions?
As a business owner, when considering making a pension contribution it is important to consider the tax implications.
Nobody likes spending more money than they have to.
Below we look at the tax implications of making an employer v’s a personal (employee) pension contribution, assuming the individual has sufficient relevant earnings.
Helen is a business owner who has taxable income of £45,000 and the funds to make a pension contribution either personally or through her Limited company, but which is right for them?
|Personal pension contribution:|
|Dividend drawn to fund the pension||£16,000*|
|Personal tax payable on the dividend @ 7.5%||£ 1,200|
|Cost of funding the pension||£17,200|
|Employer financed pension contribution:|
|Gross pension contribution made from the company||£20,000|
|Corporation tax relief on the payment in 2021/22||(£3,800)|
|Cost of funding the pension||£16,200|
|Saving by making an employer financed payment||£ 1,000|
Make this level of pension contribution each year and that’s a significant saving over your working life.
When making a pension contribution it is important to seek advice from both a qualified financial adviser and an accountant to ensure the tax reliefs above are available.
It’s also equally important to ensure that your pension contribution is invested in line with your overall attitudes and to take full advantage of the effect of compound returns.
Tax treatment varies according to individual circumstances and is subject to change.
* Paid in to the scheme, receives basic rate tax relief of £4,000, meaning total funds applied of £20,000.
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The information contained within the blogs was correct at time of writing. If this area is of interest to you then do please feel free to get in touch as we would be more than happy to bring you fully up to date on any changes.