A director’s pension isn’t only about saving for retirement, it’s also a tax efficient way of extracting profits from the business. As director of your own limited company you are able to make contributions to a company director’s pension both as a business and as an individual, or as ’employer’ and ’employee.
How much can a company pay into a directors pension UK?
Although there’s no limit to the amount you can pay into your pension, there are limits to the amount you can contribute and still receive tax relief. The limit is currently 100% of your income, up to a maximum of £40,000.
Are directors classed as staff?
Directors are office holders Directors don’t automatically qualify as employees of a company. They hold an office and are known as office holders. An office holder can also be an employee if they are ’employed under contract’ by the company.
Can a director of a limited company contribute to a pension?
Making personal pension contributions as the director of a limited company. If you own a limited company and you take both salary and dividends, the dividends don’t count as ‘relevant UK earnings’, so only the amount of money you take as income will be used to calculate your pension tax relief limit.
Is it better to pay into pension or limited company?
That said, paying through your limited company is usually more tax-efficient. And here’s why. The main advantages of making personal pension contributions are that: You get tax relief. If you pay income tax at the basic rate, this is paid automatically into your pension.
Why is it important to have directors pension?
A directors pension allows your company to consistently build your net worth for retirement. It’s a financial vehicle that facilitates the tax efficient transfer of cash from your company’s balance sheet into an investment account in your own name.
Do you have to pay National Insurance for limited company directors?
Limited company directors are also exempt from paying National Insurance on pension contributions. The rate for 2019-2020 is 13.8%, so you can save by contributing to your pension rather than paying yourself the equivalent salary.
