As accountants we can’t offer advice regarding pensions, but we can help you understand the tax benefits and relief that can be achieved from your pension contributions.
The tax relief that you’re entitled to depends on a few factors – whether you’re employed, the owner of a Limited company or self-employed.
If you’re self-employed you cannot claim your pension contributions as a business cost, meaning they don’t affect your self-employed profits. You can however receive tax relief on your payments in line with the rate of income tax that you pay.
The tax relief will be automatically claimed ‘at source’ by your pension provider, so there is no need for you to action anything. If you are a higher rate taxpayer, you’ll need to reclaim the additional relief via your tax return.
For a self-employed person your annual allowance (the amount you can contribute to your pension) is usually capped at £40,000 or 100% of your annual earnings up to £40,000.
If you own a Limited company then your pension tax relief can vary depending on whether you receive a salary, dividends or both. In most circumstances, if you trade through a limited company, it is better to make pension contributions as an employer.
As a Limited company, you can contribute pre-taxed company income to your pensions, and because an ‘employer contribution’ counts as an allowable business expense, your company will receive the tax benefits via your corporation tax at 19%.
If you exceed the Government’s set allowance for your tax relief for pension contributions you will face tax charges, so it’s important to be aware of the rules each year and what you’re contributing.
Whilst we can’t advise on pensions and investments because we’re not financial advisors, we can recommend advisors who will be able to help you. Our recommendations do not benefit us in any way, so are totally ethical and independent.
If you’d like to understand more about your personal circumstances and the tax relief you’re entitled to, please contact us today. One of our tax experts can assess your current situation and provide the very best advice.
By Michelle Morris on 03/06/2021 06:00:00