Employers’ contributions to Personal Pension Schemes

I have been discussing this with quite a few clients recently so thought it would make a good blog post…

If you are an employee – including when you also own the company – your employer can make contributions to your Personal Pension and, provided it is an approved scheme, there are multiple tax advantages available to you and them.

For you, the contribution is not part of your taxable pay and receives basic rate relief which means that if your employer contributes £80, the scheme will claim £20 on your behalf so a total of £100 is invested in your pension.  If you are a higher rate taxpayer, you then get to claim another 20% relief through your tax return.

This is the bit your employer will like – they then deduct the contribution in arriving at their taxable profits and don’t have to pay employers’ Class 1 NIC – that’s possible savings of 33.8%.

Finally, one huge advantage of the employer making the contribution is that they can pay in up to £40,000 regardless of what the employee earns (subject to HMRC’s excessive remuneration rules) whereas the individual employee can only get tax relief on contributions up to the value of their salary.

The Government wants us all to save for our golden years and that is why they offer tax incentives. Are you sure that you are making full use of all the tax reliefs available to you and your business?  Call us today and arrange a personalised tax MOT.

About the Author
Carolyn Burchell trained with the UK’s top firm of accountants, qualifying as a Chartered Accountant in 1996. Carolyn moved into industry in 1997 working on a number of commercial projects and managing Treasury and Credit functions before taking a career break to have a family. In 2009, Carolyn decided to enter into the stringent Chartered Institute of Taxation examination programme, qualifying as a Chartered Tax Adviser in 2012.

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