Paying Pension contributions from a Limited Company.
Really efficient tax breaks are not easily come by in business. However, you should have a think about paying your pension directly from your company and here is why.
When you pay your pension from a company you are allowed to claim the amount paid as a cost, just like a bill for council tax. This means for every £100 paid, the company will save £19 in Corporation Tax. This is great, however, there is another bonus, the Pension provider then claimed back Tax Relief so your £100 is then made up to £125 through HMRC's contribution.
This has the net effect of turning £81 into £125, which is a 54% increase in capital invested in your pension.
Providing you are in a scheme that pays 4% or more per year, this additional money can magnify your pension pot considerably. Let's use a 6% yield comparison, which is 50% more.
Compounded pension income example:
Y1 £104 £106
Y2 £108.16 £112.36
Y3 £112.49 £119.10
Y4 £116.99 £126.45
Y5 £121.67 £133.82
Only in year 5, the amount in your pension is 56% higher, and as the years march on, and the pot is compounded further, the difference will only grow.
This example is only for the purposes of taxation, and any pension advice should be sought from a qualified pension provider.
If you are in need of assistance as a Sole-Trader, Small Ltd Company, or Landlord, please call us on 01784 390021 or email email@example.com.