What does a company pension payment do to Corporation Tax?
When your company pays into a pension for you, that payment normally counts as a business cost, the same family as wages, and business costs come off your profit before Corporation Tax is worked out. So if your company made £50,000 of profit and paid £5,000 into your pension, it would normally pay Corporation Tax on £45,000.
We say "normally" for a reason. The payment has to be a genuine business cost, part of paying the people who work in the business, and that's the everyday case for a typical small company. A very large one-off payment is a conversation for an accountant first.
What's the annual allowance?
There's a ceiling on how much can go into your pensions in a tax year before a tax charge appears, called the annual allowance. It's £60,000 this tax year, and it counts everything going in: money you pay in yourself and money anyone else pays in, including your company. Stay inside it and there's no tax to pay on the payments. Go above it and you, not the company, can face a personal tax charge, reported on a Self Assessment tax return. Unused allowance from the previous 3 tax years can sometimes be carried over, and people with very high incomes, or who have already started flexibly taking pension money out, can have a lower limit, so check with an adviser before a big payment if that's you.
What's the difference between the company paying and me paying personally?
Both routes are real. No advice here, only the plain mechanics:
- The company pays. The money goes straight from the company's bank account into your pension pot. It was never your salary and never your dividend, so it never shows up as your personal income. The company's profit goes down, so its Corporation Tax bill goes down.
- You pay personally. The money has to reach you first, usually as salary or dividend, and it gets taxed on the way like any other pay. When you then pay it into your pension, your provider usually claims basic-rate tax relief for you: every £80 you put in becomes £100 in the pot. Personal payments only get that relief up to 100% of your earnings for the year.
That first bullet is the bit directors usually ask about: a company pension payment comes out of company money before it's ever paid to you. Which route suits you, and how much, is exactly what a financial adviser is for.
Where does it go in the accounts and the tax return?
Nowhere scary. A company pension payment sits with your staff costs, alongside wages and employer National Insurance, as a normal running cost of the business. It comes off the profit like any other business cost, and what's left is what Corporation Tax is charged on. The company's payments into a workplace pension for employees live in exactly the same place.
How SimpleReturns handles it
If your company has been paying into a pension, the payments are sitting right there on your bank statement, and that's all we need. Upload the statement, we put pension payments with your staff costs automatically, and you see every figure before anything is sent. Filing both your accounts and your Company Tax Return costs £99, once, no subscription, free to start.