Can my Limited Company contribute to my pension?

When you’re busy working you’ll want to know that your future is taking care of, usually in the form of a pension. But can you contribute to a personal pension from a Limited Company?

In this blog we explore just that, to help you plan for your future.

Limited Company Employer and pensions

By contributing to a pension from a Limited Company, an owner/director can enjoy significant tax advantages, as they’re considered an allowable expense, and can therefore be offset against the Corporation Tax bill.

The tax implications from making personal pension contributions

When you make a payment into your pension, you receive tax relief which reflects the rate of income tax you pay. So in a nutshell, if you are a basic rate taxpayer, you’ll pay £100 to save £125 into your personal pension.

Whilst the total amount you can pay into your pension is limitless, there is a limit to the amount you can contribute and still receive tax relief. At present, the limit is 100% of your income, up to the maximum of £60,000.

If annually you earn less than £3,600 or nothing at all, the total amount you’re able to contribute to your pension (within the tax relief limit) is £3,600, including tax relief.

Employer pension contributions

A Limited Company is able to make pre-taxed company contributions into the pension of an employee or Director. Employer contributions count as allowable expenses, so a company receives tax relief against Corporation Tax, so effectively a company could save a maximum of 26.5% in Corporation Tax.

In order for the pension contributions to be allowable, they must adhere to the allowable deductions. Pension contributions must be ‘wholly and exclusively’ for the purpose of business.

Another benefit of making employer pension contributions directly from a Limited Company, is that employers aren’t subject to National Insurance on pension payments. So if a Company were to contribute directly into a pension rather than paying in the form of a salary, you’d save up to the current National Insurance rate for 2023/24, which is 13.8%.

So by paying directly into a pension a Limited Company can save up to a total of 40.3%. Personal circumstances of course will have an effect on how beneficial this is, and it may be the case that paying personal pension contributions will actually mean you have more money in your pension pot at the end of the day.

How Aardvark Accounting can help

Pensions can be confusing, and when you’re busy working you’ll want to make sure that your money is working as hard as it possibly can in the background, so that it’s ready for when you decide to retire. Your Aardvark accountant will be able to advise you further on this, and point you in the right direction for specialist pension advice and support that’s tailored to your specific needs. Another great benefit of being an Aardvark Accounting client!

Get in touch directly with your Aardvark accountant to discuss your plans for the future, and how they can help you achieve your goals.