Pension Contributions (Personal or Company?)

17th March 2017

How much can I pay into my pension

As we near the end of the tax year one of the questions I get asked most is ‘How much can I pay into my pension?’

As a rule of thumb, and in order to receive full tax relief, the answer is 100% of your annual salary up to a maximum of £40,000. For those earning over £150,000 per annum the rules become much more complicated, so please call me for a chat.

Personal contributions into pension qualify for Basic Rate Tax Relief at source and Higher Rate Tax Relief, via your Self-Assessment Tax Return (SA302).  

Company directors who take a large proportion of their income as dividends are limited to making personal contributions equal only to their salary. However, contributions that are made by your company into pension for you or your employees are not restricted by your salary. Your company can therefore make ‘employer’ contributions up to the full annual allowance of £40,000, regardless of salary. There is a ‘Wholly & Exclusively’ requirement, but if you are a Shareholding Director this shouldn’t be an issue.

These contributions (i.e. employer contributions) benefit as a tax deductible business expense thereby reducing the companies Corporation Tax bill and are not subject to National Insurance.

As a final point, it may also be possible to make contributions in excess of the annual allowance if you haven’t used your full entitlement in the 3 previous tax years. This process called ‘Carry Forward’ is dependent on you having been a member of a scheme over these 3 years although you do not necessarily have had to make any contributions to pension over this period. A little more complicated but a valuable asset if you are trying to reduce your tax bill.

Yours

Adrian Smith