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Reduce your tax bill and boost your pension with an employer contribution

Thursday 11th August 2011

Working through a limited company is almost always the most tax efficient option for Contractors; however you can reduce both personal and corporate taxation even further by using your company to invest towards an income in retirement.

Pension planning represents a very tax efficient means of transferring money from contract to personal hands as the vast majority of Contractors enjoy effectively no restrictions on the level of contribution that their company can make this year. Personal contributions are capped at 100% of what may be a very low salary however and so investing via your personal bank account could severely restrict the tax benefits that you can achieve.

If you choose to contribute directly from your Ltd Company you simply invest the gross pension contribution and 123 Contracting can write this off as an expense against your company's corporation tax. The fact that you avoid the personal taxes that you would otherwise have been levied on salary and dividends therefore makes contributing via your company an arguably more straightforward option.

If you are caught by IR35 then a company contribution is a no brainer compared to a personal contribution due to the fact that you will otherwise be paying NI on virtually all of your salary whereas any company pension contribution is allowable even over and above the 5% expenses.

To find out more about the tax breaks available using pension contributions or to discuss your existing arrangements to ensure they are appropriate call 123 Contracting on 0845 834 0269 or email contractorfinancials@123contracting.co.uk



123 Contracting would like to thank ContractorFinancials for the above article.

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