To qualify for tax relief the total amount of your pension savings must not exceed the Annual Allowance limit in any tax year, so you or your contractor accountants may need to keep an eye on this.
For the 2013-14 tax year the limit is £50,000 but this will decrease to £40,000 on 6 April 2014. HMRC allows you to carry forward any unused allowance from the three previous years before the current tax year, so with good tax planning you could avoid going over the allowance even if your current tax year’s pension savings exceed the limit.
If your total savings do exceed your Annual and unused allowance, tax will be payable on the excess amount. There is also a Lifetime Allowance Limit for pension savings. This is currently £1.5 million but will decrease to £1.25 million from 6 April 2014. These are unlikely to affect the majority of taxpayers, but again, if savings are over this limit a tax charge will apply to the excess.
The most tax efficient pension contribution option for you and your company will depend on your individual circumstances and the details of the pension policy itself. If you have specific queries regarding the tax advantages of claiming pension through your company contact your contactor accountant for guidance.
At Bibby & Co we specialise in providing user friendly online accounting for contractors with limited companies. All our clients benefit from the knowledge and advice of our experienced contractor accountants which helps ensure they achieve maximum net yield from their contractor income. Contact us to find out more about how we can help make your contractor accounting easier.