Employer pension contributions: Consider making one before 31st March.

One way to mitigate the corporation tax liability for your company is to pay employer pension contributions for its director(s).

Not only do these qualify for corporation tax relief but they don’t count as directors’ income for tax or NI purposes. This makes them very tax efficient.

Timing your contributions

A deduction for pension contributions is only allowed for the accounting period in which they are paid. This means if your company wants to reduce its corporation tax bill for an accounting period it needs sufficient funds so it can pay the contributions before it ends.

Companies with a 31 March 2023 year-end will need to make a contribution before the end of March.

Limited tax relief

While your company can pay any amount to a pension scheme for you, the annual allowance (AA) limits the tax-efficient amount to £40,000 per tax year, including contributions you personally pay. Any more can lead to an additional tax charge. 

Example

A company with a taxable profit of £50,000 would be liable to pay £9,500 in corporation tax.  If the company made an employer pension contribution on behalf of the director(s) before the accounting year end of £20,000 then the corporation tax liability would be reduced to £5,700, a saving of £3,800.