Your limited company can contribute pre-taxed company income to your pension. Because an employer contribution counts as an allowable business expense, your company receives tax relief against corporation tax, so the company could save up to 19% in corporation tax.
Your employer pension contributions must abide by the rules for allowable deductions. The rules state that the pension contributions should be ‘wholly and exclusively’ for the purposes of business. To figure out whether this is the case, HMRC looks for certain evidence, for example whether other employees are receiving comparable remuneration packages.
Another benefit is that employers don’t have to pay National Insurance on pension contributions. The National Insurance rate for 2020/21 is 13.8%, so by contributing directly into your pension rather than paying the equivalent in salary, you save up to 13.8%.
This means that in total, your company can save up to 32.8% by paying money directly into your pension rather than paying money in the form of a salary.
Depending on your circumstances, this may or may not be more beneficial to you than paying personal pension contributions.
Talk to a financial adviser to find out what is best for you!