Zyla Accountants cannot give any advice for investing in any particular pension scheme or plan since we are not authorised to provide Investment advice. Stated below are the tax benefits and advantages in contributing to a pension plan from the company.
Advantages of setting up pension contributions by the company:
- Not taxable on the pension scheme member on their personal tax return
- Not restricted by the member’s relevant UK earnings in the tax year
- Counts towards the member’s annual pension allowance of £40k per year but you also have to include all payments (employer and employees) into any other pensions you hold while calculating the total contribution
- Usually, deductible expenses for the business when calculating its taxable profits, saving 19% corporation tax in 2021-22 on pension contributions
- There is no Employers National Insurance of 13.8% to pay on pension contributions which have to be paid on salaries. Hence the saving overall is 32.8%.
- Contribution to the scheme cannot exceed the earnings of the company in that financial year
A popular pension scheme is SIPP: Self Invested Personal Pension Scheme. Many providers like Aviva, Pension Bee, Hargreaves Lansdown etc offer pension plans.
The main advantages are you can control the investments, offer you the flexibility to choose the assets the fund invests in and the ability to manage your deductible portfolio if you wish.
Withdrawing money from pension scheme on reaching age 55:
Most personal pensions set an age when you can start making money from them. It’s not normally before 55. You can take up to 25% of the money built up in your pension as a tax-free lump sum. You’ll then have 6 months to start taking the remaining 75%, which you’ll usually pay tax on.
HMRC link for further information: https://www.gov.uk/personal-pensions-your-rights/how-you-can-take-pension
Tax advantages on pension are shown below as examples with an efficient structure:
|Employers NI 13.8%||0.00||0.00||0.00||0.00|
|(No employers NI to £8840)|
|Employees NI (No EEs NI)||0.00||0.00||0.00||0.00|
|Tax on salaries 1257L code||0.00||0.00||0.00||0.00|
|Tax on Dividends – £2k not taxable and balance @7.5% tax||-300||-300|
|Net to Director||8,840.00||5,700.00||5,000.00||19,540.00|
|£5000 is set as Employer only contribution pension plan where the company contributes. Deductible expense from business income for Corporation Tax.
£[email protected]% = £950.00 tax saving.
|There is no tax to pay on Self Assessment on the Pension contributions|
- Hargreaves Lansdown: https://www.hl.co.uk/pensions/contributions/employer
- Pension Bee: https://www.pensionbee.com/pensions-explained/pension-contributions/contributing-to-your-pension-from-your-limited-company
- Pension advisory service on annual allowance explained: https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/the-annual-allowance
For more information, contact Zyla Accountants:
+44 7535 6176 81