How much can my employer pay into my pension

 

Controlling directors

Controlling directors can control how much remuneration they take from the business and the proportion that is taken in the form of salary, bonus, dividends and pension contributions. In particular, a controlling director may decide to take a small salary and the bulk of their remuneration as dividends for tax and national insurance reasons. Does that mean they have restricted the scope for tax relievable employer contributions?

The short answer is no. As long as it can pass the 'wholly and exclusively' test, an employer contribution will benefit from corporate tax relief.

The first step for HMRC is to establish whether the level of the total remuneration package i.e. salary, bonuses, commission, benefits in kind and pension contributions is commercially reasonable for the work done. Where a controlling director is the driving force behind the company and whose work generates the company's income (e.g. where the controlling director is the sole owner and employee), the level of the remuneration package is a commercial decision and is unlikely to fail the test. A large employer pension contribution (in comparison to salary) may therefore be able to be claimed as an expense of the company.

However, the employer's contribution is deducted from the employer's trading profits for tax purposes and can normally only be applied to the period of account in which it is paid.

http://adviser.royallondon.com/technical-central/information-guidance/contributions-and-tax-relief/employer-contributions-and-tax-relief/

03 Jul 2015

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