Pension Contributions for directors

10th April 2024

Are you thinking about planning ahead for retirement and want to find out more about Pension Contributions for directors?


When it comes to planning for your retirement, Company pension contributions can offer significant benefits in terms of reducing your company’s Corporation Tax bill. Here’s how you can use both personal and company contributions to optimise tax efficiency:


Personal Contributions

You can make personal pension contributions from your PAYE director’s salary to your pension, you not only save for retirement but also benefit from a 20% tax relief ‘bonus’ courtesy of the government. For instance, if you contribute £100, the government adds £20 to your pension fund. Higher-rate (40%) or additional-rate (45%) taxpayers enjoy even greater tax relief.

This tax relief effectively acts as a refund on the Income Tax deducted from your salary at source. However tax relief on these personal contributions are restricted to the higher of £3,600 gross or 100% of relevant UK Earnings. Total pension contributions are subject to an annual allowance of £60,000 which applies to all personal contribution and company contributions. Additional-rate taxpayers may face a tapered annual pension allowance on higher incomes.


Company Contributions

Pension contributions made directly from your limited company can provide even greater potential for tax savings. Unlike personal contributions, these are not restricted by relevant earnings thresholds.

HMRC recognises pension contributions as allowable business expenses if they are deemed ‘wholly and exclusively’ for purposes of trade. As such, you can offset these contributions against your business profits, effectively reducing your company’s Corporation Tax liability. This tax relief ranges from 19% to 25%, depending on your company’s annual profits and the applicable Corporation Tax rate.

Additionally, Employer’s pension contributions made through your company are not subject to Income Tax or National Insurance contributions, providing further tax advantages.


Get In Touch

Contact your local Whitings office, for more information or advice on Pension Contributions for Directors.


Disclaimer - All information in this post was correct at time of writing.
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