Employers pay pension payments

It can often be much more tax efficient for the employer to pay into pensions schemes as “Employer” contributions. This will often result in National Insurance savings for both the employer and employee (which include company directors). A “salary sacrifice” scheme may be set up, where the employee receives less salary and the employer pays into their pension pot.

Care needs to be taken on setting this up. However with potential savings of up to 23.8% of the salary between the employer and employee, it is worth getting it right

Use your company to pay your pension

It can often be more tax efficient for the company to pay into personal pensions schemes as “employer” contributions, rather than you pay personally into your pension. Why I hear you ask? Well there is an immediate saving in National Insurance for both the company and yourself, and there can be a cash flow saving on the tax.

Normally you are liable to tax and National Insurance on the salary that you receive from the company. On top of this the company is normally liable to further National Insurance. This tax and National Insurance is often paid over to HM Revenue & Customs shortly after the salary is paid to you.

If you make pension contributions personally you would then look to reclaim higher rate tax on the contributions, some months after the tax year in which the contributions were made. This could be up to 22 months after the first contribution was made.

To save money and ease cash flow, you could consider the company making “employer” contributions into your pension pot. Providing certain conditions are met, there is no liability to tax or National Insurance if the company pays employer contributions into your pension scheme. It may also be possible for the company to get full tax relief for the contributions in the same way had it paid you the contributions in extra salary. The National Insurance saving alone could be up to 23.8% of the contributions and so it is worth considering.

In current times of cost cutting you could even consider this for your employees. You could use a “salary sacrifice” scheme, where the employee receives less salary and the employer pays into their pension pot. Care needs to be taken on setting this up. However with potential savings of up to 23.8% of the salary between the employer and employee, it is worth getting it right.