Cut company and personal taxes.

Given the constant challenge of running a business, Contractors will dream of early retirement. The hard truth is that, without the benefit of a large company retirement package and with state provision woefully poor, you will be reliant on whatever nest egg you can build up for yourself.

The good news is that there are very compelling tax planning opportunities now associated with pension investment which could enable you to slash the proportion of your corporate and personal income that goes to HMRC.

Personal Contributions –

• Contractors can personally invest (i.e. direct from your private bank account) up to 100% of salary into a pension.
• Benefit from income tax relief at your highest marginal rate.

Company Contributions –

• The company can fund a pension scheme on your behalf.
•  'Employer' contributions can be as much as £50k pa, representing a very tax efficient method of transferring money from company into personal hands.
• Your corporation tax bill could potentially be reduced to nothing by investing in a pension.
• You can hold business premises via a Self Invested Personal Pension (SIPP) with the pension in turn charging your company rent, which helps to inflate the size of the pension pot even further.
• Subject to minimum ages, you can invest into the pension to cut your tax bill today, immediately withdraw 25% of the fund tax free and yet not even formally retire.

Benefits for any Employees that you may have

As the employer you may choose to make pension contributions on behalf of any staff you employ. A pension not only aids initial recruitment but can also help staff retention as it is often regarded that the Employee has a far greater stake invested with the company than simply this month’s paycheque.

Company Contributions –

• You can contribute on behalf of your employee and this cost is treated as an allowable business expense which can help reduce corporation tax.
• Unlike other forms of staff incentives there will be no National Insurance cost to you or the Employee and no benefit in kind implications.
• Typically this will be via a group personal pension scheme.

Personal Contributions –

• An employee can invest personally (i.e. direct from your private bank account) up to 100% of salary into a pension.
• They benefit from income tax relief when they invest personally but salary sacrifice could be a far more lucrative method of investing.

Salary Sacrifice -

• An employee can elect to transfer part of their gross salary into a company pension scheme, avoiding not only income tax but also employees National Insurance too.
• There is a reduction in Employers National Insurance which is due by virtue of the reduced salary and it is your decision whether to pocket this saving or pass this money that would have gone to the taxman into the Employees pension instead.