PENSION CONTRIBUTION IS TAX EFFICIENT FOR BOTH EMPLOYEE AND EMPLOYERJul 02 2021
Pension contributions to approved pension funds on behalf of employees and directors continue to be tax-free, provided the annual input limit is not breached. The contributions are also deductible for the employer, provided it’s incurred wholly and exclusively for the trade and paid before the end of the accounting period of the business.
For most taxpayers, the annual input limit is £40,000, and this overall limit applies to contributions by the employee plus contributions made by the employer on the employee’s behalf. It is also possible to take advantage of unused relief from the previous three fiscal years.
Payments into the pension fund by the employing business will be deductible against business profits. This will only save 19% corporation tax, but from 1 April 2023, it will save 25% where profits exceed £250,000 and 26.5% where profits are between £50,000 and £250,000.
Note that these limits are divided by the number of associated companies, i.e., under common control. Although the contribution on behalf of the employee or director may be tax-free, they are generally not able to access the fund until age 55.