To qualify for tax relief, company pension contributions must be made for genuine employees of the business. As most contractors are directors of their own contractor company they will legitimately qualify for this relief. Exact savings will of course vary depending on the level of contribution you make through your company, but you can potentially save tax in the following ways:
- Employer pension contributions are as an allowable expense for Corporation Tax purposes, thus they reduce your company tax liability by £200 for every £1,000 contributed (assuming the company pays corporation tax at 20%).
- Pension contributions are not a benefit in kind, so there is no tax or NI implications provided the limits are not exceeded (see below).
- If you are within IR35 then pension contributions are allowable against your deemed salary, thus reducing the amount you need to take as wages.