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As a limited company director, you can pay more into your pension through your limited company than others and still claim all the tax benefits. However, there are limits.
In this article, we'll look at how company pension contributions work.
Once you've set up your limited company pension, you can start to calculate how much your contributions will save in tax.
For most people, self employed pension contributions are capped at either their yearly salary or £40,000, whichever is lower.
However, as a limited company director, your business can contribute into your pension without the salary restriction that other sole traders or self employed workers face.
Contributions into your pension are tax-free up to £40,000 a year (for the 2020/2021 tax year) - however, contributions above this will be subject to a tax charge.
If you have a large amount that you'd like to put into your pension scheme, then you may be able to take advantage of the carry forward rules. This allows you to make use of any unused annual allowance from the previous three years, provided that you were a member of a registered pension scheme during that time.
You must first make use of your full annual allowance for the current tax year, before using any unused allowances from the previous three years.
You should also take into account the Lifetime Allowance and any other factors including whether you’ve taken any pension benefits from another policy. For more information on this, head to our in-depth article on pension contributions for the self employed.
With a Penfold pension, paying in through your limited company takes just 5 minutes. You can set up regular payments, or make one-off payments through bank transfer, Direct Debit or instant payments, all via the app in just one tap.
We already help thousands of directors every day gain full control over their finances. Penfold provides all the tools and support you need to track down old pots, make tax-efficient decisions and help your hard-earned money grow.
Set up your personal pension with Penfold today in just 5 minutes.
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Create an account, or get in touch with our team for more help.