Are you a company owner paying your own pension premiums?

The rules regarding the tax relief on pension payments changed in April of this year. Now, tax relief is only available for contributions up to £50,000 per annum. This limit however only applies to individuals and for shareholder/directors there can, in the right circumstances, be quite a tax advantage in using the company to pay the premium on your behalf.

Shareholder/directors have the advantage of choosing whether or not they would like their company to pay the pension premium on their behalf. A company can claim full corporation tax relief on any premium made, however you need to be aware that any company payments made still count towards your individual annual £50,000 limit and if this is exceeded you may incur a personal tax charge on amounts in excess of the limit.

A further consideration is the potential to save tax and national insurance, as a premium paid personally comes from net income on which tax and national insurance has been paid, whereas a company paid premium escapes both of these. Whilst there is still tax relief on the premium paid, the national insurance saving is still applicable. 

The rules surrounding pension payments can be complicated and there are of course considerations other than tax which are relevant, but if you would like further information on the tax consequences and any potential tax savings regarding pension premiums please do not hesitate to give us a call on 01733 371180.