If you have a limited company, you can contribute to a pension and gain significant tax advantages for your business. Pension Contributions From Your Limited Company made as a company can be treated as an allowable business expense. In turn, this can then be offset against the corporation tax bill for your business.
But did you know that if you run your own business and it is incorporated as a limited company, you can make personal contributions to a pension? You can also make contributions to your pension through your company.
Both of these options will give your business significant tax advantages. However, what is right for you, depends on your individual circumstances. There are tax implications for each option. The benefit of working alongside professional and experienced accountants in Peterborough, like the team here at Direct Peak, is that we are always on the lookout for ways to help you lower your taxes and make your money work for you.
This can be done in various ways. For example, if you are a director for a limited company, your limited company can make a payment to the pension fund as an employer’s contribution. This is classed as a business expense which means it gets corporation tax relief.
The contribution goes into the director’s personal pension fund with no personal tax paid. This also means that there will be no government top-up. The contribution to the pension will also not attract any Employer or Employee national insurance either.
Utilise three years of annual allowance
It is worth noting that the annual allowance is £40k. However, if you have not made this contribution before you can utilise the past three years too. This could mean a total of £160k for the past three, plus the current year.
You will need an Independent Financial Advisor (IFA) to handle this alongside your accountant in Peterborough. We have an Independent Financial Advisor we recommend if you are looking for a reliable one to work alongside.
Want to know more about the benefits of pension contributions from your limited company? Call our friendly accountants in Peterborough. We will happily book a meeting with you to talk you through the benefits and how we can help you.
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Direct Peak provides a dedicated business tax accountant, who will prepare your annual accounts and tax returns. They will be on hand to answer any tax queries you have.
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Your business tax accountant will ensure that the company is set up in the most tax-efficient way and that you are claiming for all the correct expenses to maximise your earnings.
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We aim to turn around the annual accounts and tax returns quickly to give you visibility of your tax bill well in advance of it being due.
The advantages of making Pension Contributions From Your Limited Company
There are several advantages for a limited company to make pension contributions. Here are some key benefits:
- Tax relief: One of the primary advantages is that pension contributions made by a limited company are typically tax-deductible. This means that the company can deduct the contributions from its taxable profits, thereby reducing the amount of corporate tax it needs to pay.
- Lower National Insurance contributions: When a limited company makes pension contributions on behalf of its employees, those contributions are not subject to National Insurance contributions (NICs). This can result in savings for both the employer and the employee, as the overall NIC liability is reduced.
- Employee retention and motivation: Offering a pension scheme and making contributions can be an attractive benefit for employees. It demonstrates that the company is committed to their long-term financial well-being and can help with staff retention and motivation.
- Tax-efficient director’s remuneration: For directors of limited companies, making pension contributions can be an effective way to extract income from the company in a tax-efficient manner. By directing a portion of their remuneration into a pension scheme, directors can benefit from tax relief on the contributions, reducing their personal tax liabilities.
- Future financial security: By making regular pension contributions, the company helps employees build up their retirement savings, ensuring they have a secure financial future. This can enhance employee loyalty and job satisfaction.
It’s important to note that pension rules and regulations may vary between jurisdictions, so it’s always advisable to consult with a qualified accountant or financial advisor who can provide specific guidance tailored to your situation and local regulations.
