Run a limited company? Here’s What You Need to Know About Workplace Pension Contributions

If you operate a Limited Company and want to save money on taxes, workplace pension contributions are a good option. These donations are considered an eligible business expense that can be deducted from your company's tax statement.

Furthermore, as the owner of a limited business, you have the option of making personal donations or contributions through the limited business. Though both can be tax favorable depending on your circumstances, you'll almost certainly be subject to the following taxes, which we'll go over today. Personal Pension Contributions: Personal contributions have the following advantages: If you pay the basic rate of income tax, you may be eligible for tax relief. It will be deducted from your earnings automatically. You can claim additional tax back from your self-assessment tax returns if you pay a higher rate of tax. In contrast to limited business payments, you are not required to authenticate your personal pension contributions to HMRC. It has some disadvantages in addition to its benefits. You can, however, contribute 100% of your income to the pension. You cannot increase your pay in order to take advantage of a tax break. Let's say your present salary is £8,788 and you want to raise it to £14,000. You do not have to pay income tax or national insurance contributions because your current salary is within the personal allowance. Dividend tax is only imposed at a rate of 7.5 percent on the money you receive as a dividend. However, by increasing your salary to £14,000, you will be able to save more on your pensions. You are, nonetheless, liable to pay: The basic rate of income tax is 20% (2021-21, since the personal allowance is £12,500, thus you must pay income tax on £1500, or £300).National Insurance for Class 1 Employees at a rate of 12% on earnings over £9,500, or £540.As a result, you must pay a total of £840. It's the amount you pay before your employer contributes to your pension. It's important to note that you can't get your money out of your pension until you're 55 years old. So, before you make your selection, you should be informed that you will be saving your money for a long time. Pension contributions through the Limited Company: Here are a few of the most significant benefits of paying pensions through a limited company:

1. The £8,788 wage barrier does not apply here, allowing you to contribute up to £40,000 to a pension each tax year.2. The pension contribution made by your company is considered an eligible business expense, allowing you to avoid paying Corporation Tax, Employers' National Insurance, or income tax.3. Dividends are the most tax-effective way to receive money. Quick Sum Up: You can apply to the pension regulator for an auto-enrolment exemption if you want more freedom with your payments towards employment pension contributions. You can pay £40,000 per tax year and avoid paying corporation tax, NI, and income tax by paying this pension directly from your limited company. Taking your salary as a dividend allows you to save a significant amount of money. If you have any additional questions, please contact our accountants for assistance.

Accountants in Croydon help small businesses and startups with their accounting and taxation matters, to keep their business running smoothly.