Can I save tax by making company pension contributions?

Most individuals and sole traders can obtain tax relief on their personal pension contributions, but for company directors, there are additional tax benefits which can be obtained by making contributions from their company as opposed to making personal pension contributions. 

There are two key tax advantages to making payments from your company: 

1.  the company contributions will generally be an allowable company expense, which will reduce the corporation tax your company pays.  
2. you can make contributions into your pension plan before any tax is deducted from your income – so you’ll pay less income tax on the forgone dividend or salary. 

In your case, it is likely you could save corporation tax at up to 26.5%. 

For the financial year starting 1st April 2024, the main corporation tax rate is 25% where profits exceed £250,000.  

A small profits rate of corporation tax of 19% applies where profits are below £50,000. 

Where profits range between £50,000 and £250,000, as in your case, companies pay an effective rate of 26.5%. 

Therefore, making pension contributions from your company can be very tax efficient. However, it is worth remembering that the amount that may be saved into a personal pension is limited by a number of factors, so you should seek advice to make sure you maximise your tax savings and avoid any tax traps. Equally, although a good rule of thumb is that a company contribution is more tax efficient than a personal contribution, this will not apply in every case.  

At TaxAssist Accountants Banchory we love working with company directors to ensure their company remuneration strategy is tax efficient and tailored to their specific circumstances.  

If you need help with your affairs, call us today on 01330 700580 or drop us a line using our online enquiry form.  

Date published 12 Jun 2023 | Last updated 19 Sep 2024

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.