The Business Exchange Swindon & Wiltshire Edition 21: Oct/Nov 2015 | Page 10

FINANCE
O

Hear it from the experts…
Using your company to fund your pension
The earlier you take action to fund your retirement,
the better the quality of it.
There are 3 steps involved:
Step 1
Make a conscious decision to plan for your
retirement – this is the most important step
of all!

Step 2
Decide how to structure your retirement
package (pension fund; other investments) in a
way that will provide the most options and the
highest level of income for the longest period
of time.

Step 3
How to fund your retirement package? This is
where using your company to make pension
contributions can be the simplest, and the most
tax efficient, method of funding your pension
fund (and from April 2016, there is effectively a
6% tax advantage over funding from personal
contributions).
There are less restrictions on how much a
company can pay into your pension scheme
(as company/employer contributions)
compared to contributions made as an
employee.

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THE BUSINESS EXCHANGE 2015

So long as your company has available
profit, it can pay up to £40,000 (the Annual
Allowance) into your pension fund, in the
current tax year, and receive tax relief on
the contributions. Also, if your Annual
Allowance has not been used up in the
previous three years, you can use it up by
making higher contributions in the current
tax year.
In contrast, contributions made by
employees have a further limitation in that
they cannot exceed your salary - and most
owner/directors set their salary at a very low
level for tax efficiency reasons.
If you are an owner/director of your own
company, you ought to be thinking about
steps 1 and 2 - and seriously considering
using your company to fund your retirement
package. Consulting a professional financial
advisor is vital to ensure you make the right
decisions.

@AmsAccountancy

#AskAms

Ask AMS
Advice for small businesses

I trade through my own Company. Can I avoid the new
dividend tax that comes in next year?
You probably can't avoid it because paying yourself dividends
might still be the most tax efficient way to take money out of your
Company compared to (say) paying yourself extra salary or
becoming a sole-trader.
You could reduce its effect - perhaps by making your spouse a
shareholder, so that they can make use of the £5,000 tax-free
dividend allowance - which could save £375 per year in tax.
Also, if your Company pays into a pension that, in a sense, avoids
dividend tax and will probably be more tax efficient than if you pay
into a pension from cash received as dividends.
Other benefits-in-kind (e.g. private medical insurance) will also
become comparatively more attractive because they effectively
reduce dividends - and thus the dividend tax.
@AMSAccountancy
Peter Bromiley ACA ,
01793-818400
www.ams-accountancy.co.uk
AMS Accountancy Ltd., Swindon SN5 7XF