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 and you also need to make sure the contribution is to reward activities that are wholly and exclusively for the benefit of the company, but your accountant can help you confirm this. - Mike Lawrence
Mike Lawrence is the Managing Director of Guardstone Financial Planning Ltd, a fee based firm of Financial Advisers www.guardstonefp.com
HM Revenue & Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.