If you are director/shareholder of your own limited company, then yes, the company can make contributions to your private pension scheme, and this will be an allowable expense to deduct from profits before the calculation of corporation tax.
Directors of a company are exempt from auto enrolment into a pension scheme that other employees of a business have to be a part of should they meet the criteria, however the business can still opt to make contributions if it wishes.
How much can be paid in?
The amount the company can pay into the pension scheme is unlimited, however it must meet the criteria that all allowable expenses must meet by being “wholly and exclusively” for the purposes of the business or trade. If it is considered “excessive”, even if it is allowable, then the tax benefit is spread over more than one tax year so if you are thinking of making any large contributions it is important to check when relief will be received.
What would make the contributions not allowable?
One example would be if the money paid into the pension was considered excessive when compared to the work done or value added by the person receiving the contributions, then that would not be for business purposes and would not be allowable.
In the same way, if one particular person received higher contributions than everyone else performing the same role, perhaps because of relationship to the owner (spouse, family, etc), then it would be hard to argue that was solely for business purposes.
Another example would be that if the sole or main purpose of the contribution was to reduce the profit and thus the corporation tax charge, then this would not be for trade purposes even if it was beneficial to the company, so again would not be allowable.
Are they treated as benefits in kind?
Provided that the contributions meet the criteria to be a valid business expense, then they will not be treated as a benefit in kind needing to be reported on a P11D, and the employee will have no personal income tax applied to them.
When can you claim the tax relief?
The pension expense is allowable in the period that the transaction physically occurs, it is not enough to just have an accounting entry to record it. For example, a company’s year-end is 31st March 2024, and after seeing bumper profits the company commits to pay contributions to reward good results, but didn’t actually make the cash contributions to the scheme until April 2024.
The year end accounts can show an accrual for this expense, however the tax deduction cannot be claimed until the 2025 corporation tax return as that was the tax year in which the actual transaction happened, so the rate of tax relief you receive will depend on the tax rates paid in the year it took place.
The small print
As you can see from above, contributing to a pension scheme can be a useful way of reducing corporation tax and receiving personal benefit from your company without incurring personal tax charges.
However, we are not allowed to advise on pensions or schemes themselves and you should seek professional advice before setting up or selecting a pension provider, and on whether or not it is beneficial to you as an individual to make contributions through your company.
Also, please be aware that this article only discusses making pension contributions via a limited company, the rules and tax treatments for contributing via a sole trader and partnership are not the same, and different rules apply to company directors making their own individual contributions.