We all want to get the most out of our pension, whether it’s through careful financial planning or taking advantage of the myriad of schemes available.
But, as a company director, you have a few more options than most. Here are some of the best ways you can save for retirement.
Director’s pensions
As the director of your limited company, it’s left to you to pay yourself a pension, but you can do this in two ways – contribute as an individual and via your limited company.
Tax relief on your pension
As you’re able to pay into your pension in two ways, you’ll also have two different types of tax relief – income tax relief and corporation tax relief.
Depending on your annual salary, you’ll receive income tax relief on any pension contributions at your highest marginal rate – 20%, 40% or 45%. In practice, that means for every £1 a higher rate taxpayer contributes to their pension, the Government adds 82p.
If you pay yourself a pension via your limited company, you’ll qualify for corporation tax relief. This is because your pension payment will be an employer contribution, meaning it can also be filed as an expense, seeing as it’s ‘wholly and exclusively’ for business purposes.
HMRC will examine other factors when you make a contribution via your company, including:
- Checking that contributions aren’t more than the company’s annual profits. So, if your company turns a profit of £20,000 in a tax year, £20,000 will likely be the maximum the company can contribute to your pension for that year.
- If you employ staff, make sure you’re providing similar contributions to others in your company who are doing work of similar value.
If your contribution is deemed to not be an allowable expense, you may not receive tax relief.
Other tax-efficient ways to save
There are also separate contribution schemes you can use as a company director, which can offer greater flexibility when you contribute.
SIPP
A self-invested personal pension (SIPP) offers you a range of investment choices but requires a more hands-on approach to managing your pension.
You can flex your contributions as you see fit. So, if you need a payment holiday for your SIPP, you can do so as long as you contribute larger sums at another time. Paying into a SIPP has the added advantage of consolidating your other pensions into one place, making it easier to track your plans.
There are minimum pay-ins to consider, as well as eligibility rules (all of which your accountant will be familiar with).
SSAS
Another alternative is a small-self-administered pension scheme (SSAS). Unlike defined pension schemes, you must set up an SSAS via a trust and have 11 or fewer members.
These are usually popular with directors of family businesses as it allows them to provide financial protection for family members or certain employees.
Investing in your future
Finding the most tax-efficient way to save for your future is essential. As a company director, you have a range of options, but if it all seems rather complicated, advice is always available.
We aim to support our clients through sound financial advice and practical support. So if you need help with your pension contributions, look no further.
Get in touch to discuss your director’s pension.
