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. 10 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 AMS Accountancy Ltd., Swindon SN5 7XF