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Personal vs Company Pensions Contributions

If you are a Director or a Contractor with a Ltd Company with a pension scheme, you have two options on how to make your pension contribution as a personal or company contribution.

Personal contributions are simple to do and will come naturally to anyone who has previously worked for a company as an employee. However, there is a problem. You will pay tax and National Insurance on drawing the income and then when you make the pension contribution, you will just get the tax relief back, not the National Insurance cost.

When you make a company contribution, you can offset the contribution as a cost to the company. The contribution is made directly to the pension, so there is no tax and no National Insurance for the company or you personally. It is therefore more efficient.

You need to take care to not exceed the annual allowance of £50,000 (£40,000 from 6 April 2014 – see this link for more information and you also need to make sure the contribution is to reward activities that are wholly and exclusively for the benefit of the company. Your accountant can help you confirm this.

Mike Lawrence is the Managing Director of Guardstone Financial Planning Ltd, a fee-based firm of financial advisers.

HM Revenue & Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

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