Tax relief on pension payments for business owners

 In Pensions & Retirement Planning

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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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We approach all conversations ethically and take great pride in working within the remit that feels most comfortable to a client when it comes to investing.

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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.

Jessica McGowan
Jessica began her career in Financial Services in 2001 and has gained a wide range of experience working with clients from all walks of life, guiding them through the many complex aspects of financial planning to ensure that they fully understand their objectives, options and desired outcomes. Jessica prides herself on delivering an excellent service for her clients ensuring that they are well looked after through every stage of the financial planning process, firmly believing in the empathetic and emotional side of the process as much as the facts and financials. What the Riverfall team say: “Jess has to be the most organised person on the planet! Her Outlook calendar is a thing of beauty!