When deciding how to contribute to your pension as a limited company contractor, there are two main options:
Salary Sacrifice:
You reduce your salary, and your company pays the equivalent amount into your pension.
This reduces your Income Tax and National Insurance contributions.
Direct Company Contribution:
Your company contributes directly to your pension from its profits.
This is a tax-deductible business expense for your company, reducing its Corporation Tax liability.
Which is more efficient?
Generally, direct company contributions are often more tax-efficient for limited company contractors. This is because:
You avoid Income Tax and National Insurance on the contributed amount.
Your company benefits from a Corporation Tax deduction.
However, it's crucial to consider your individual circumstances and overall financial goals. Factors like your desired salary level, dividend strategy, and future tax planning can all influence the best approach.
Important Note: This information is for general knowledge only and does not constitute financial advice. It's essential to speak with a qualified financial advisor to determine the most suitable strategy for your specific situation. They can help you assess your options and make informed decisions that align with your financial goals.