Why a contribution reduces your bill
Corporation Tax is charged on your company’s profit, not on the cash in its account. When the company makes an employer contribution into a registered pension scheme such as a SSAS, that contribution is treated as a business cost - so it comes off the profit figure before Corporation Tax is worked out. Reduce the taxable profit, and you reduce the tax.
The important part for directors is that the money is not spent or lost. It moves out of the company and into your pension, where it stays invested for you - in commercial property, a loan back to your business, or other permitted assets.
How much can the company contribute?
Contributions must meet the “wholly and exclusively for the purposes of the trade” test, and they sit within your annual allowance - currently £60,000 a year, though unused allowance from the previous three years can often be carried forward, allowing a larger one-off contribution.
- The standard annual allowance is £60,000 per member.
- Carry forward can add up to three years of unused allowance.
- Contributions should be commercially justifiable relative to the director’s role.
Timing: it must be before your year end
A contribution only reduces a given year’s Corporation Tax if it is actually paid before the company’s accounting year end. Leaving it to the last minute limits your options, so the best results come from planning a few months ahead.
- Employer contributions reduce taxable profit, cutting Corporation Tax at up to 25%.
- The money stays invested for you inside the pension - it is not lost.
- The contribution must be paid before the company's year end to count.
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