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Employer pension contributions

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Great tax savings for both employers and employees

When your company contributes to your pension, both you and the company can save tax. Simply complete our employer contribution form to start or top up a Vantage SIPP with an employer contribution.

Make an employer contribution

Investments can go down as well as up so there is always a danger that you could get back less than you invest. Nothing here is personalised advice, if unsure you should seek advice.

What is an employer pension contribution?

It's a payment made by an employer into an employee's pension. The employer could save up to 32.8% in tax and National Insurance and the employee could benefit from greater tax savings by having this contribution paid directly to their pension.

Who benefits from an employer contribution?

  • Business owners and company directors:
    Save tax as both an employer and employee.
  • Sole traders and partnerships:
    Contributions to employees can be offset against the income tax liability.
  • Employers:
    Unlike salary, pension contributions are exempt from National Insurance of up to 13.8%.
  • Employees:
    Subject to the employer's approval, employees can make more tax-efficient contributions by replacing part of their salary with a pension contribution.

Tax is a complex subject so if you're at all unsure you should seek professional advice. Tax benefits depend on individual circumstances and tax rules can change.

  • By replacing part of your salary with an employer contribution, you can achieve greater tax savings than if you made a personal contribution.

    The difference between personal and employer contributions

    Personal pension contributions

    When a salary is paid to a basic rate taxpayer, it is subject to income tax (20%) and National Insurance (NI) (12%). This means for every £1,000 of salary, a total of £320 is deducted, leaving £680 after all tax has been paid.

    If you added £680 to a pension using a personal contribution, you would receive basic rate tax relief (20%) meaning your contribution would automatically increase to £850. However, whatever rate of tax relief you receive, you cannot reclaim the National Insurance contribution - see an example in the table below.

    Employee contribution Salary Tax & NI deducted Amount paid into pension Tax relief Total in pension
    Personal £1,000 £320 £680 £170 £850

    Employer pension contributions

    An employer contribution, however, is paid into the employee's pension with no deduction of income tax or National Insurance. Therefore, using the example above, the full £1,000 would be added to the employee's pension.

    Additionally, when making an employer contribution the company doesn't pay National Insurance. The company could choose to pass this saving on to the employee's pension. For example, the employer's saving on a £1,000 contribution is £138 (NI). If this was added to the pension, it would take the total employer contribution up to £1,138. The table below illustrates these examples for a basic rate taxpayer. Please note tax rules can change and any benefits depend on an individual's circumstances.

    Employer contribution Salary Tax & NI deducted Amount paid into pension Tax relief Total in pension
    Excluding NI Saving £1,000 £0 £1,000 £0 £1,000
    Including NI Saving £1,000 £0 £1,138 £0 £1,138

    Please note, your employer may choose not to offer this option.

    Download our employer contribution form

    Find out more about the Vantage SIPP

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  • When an employer makes a pension contribution, it could significantly reduce the amount of tax the company pays.

    How could your company save up to 32.8% in tax?

    • Less corporation tax:
      Pension contributions can be treated as an allowable business expense and offset against your company's corporation tax bill.
    • Less income tax:
      For a sole trader or partnership, employer contributions for employees can be set against your income tax liability.
    • No National Insurance:
      Unlike salary, pension contributions are not subject to National Insurance.

    Firstly, employer pension contributions are an allowable business expense so the company could save up to 19% in corporation tax relief. For a sole trader or partnership, an employer contribution in respect of the employee can be tax relieved as a business expense.

    Secondly, as employers don't have to pay National Insurance on pension contributions, the saving of up to 13.8% can be retained by the company. For example, by contributing £1,000 directly into an employee's pension instead of paying the equivalent in salary, the company saves up to £138 in National Insurance. Please note tax rules can change and any benefits depend on an individual's circumstances.

    By making a pension contribution, a company could save:

    Corporation Tax (19%) + National Insurance (13.8%) = up to 32.8% tax

    Download our employer contribution form

    Find out more about the Vantage SIPP

How much can my employer contribute?

Unlike personal contributions, employer contributions aren't limited to what the employee earns. A company could contribute more than the employee's earnings - up to the current annual allowance of £40,000, or up to £160,000 in some circumstances if using carry forward. If the employee has 'adjusted income' over £150,000, contributions might be limited to £10,000 - see our factsheet. If the employee has already accessed a pension, different rules can apply.

This is particularly beneficial for controlling directors who often take a small salary and large dividends to benefit from the tax advantages. As dividends don't count as 'relevant UK earnings', this would normally mean a director could only contribute up to the amount of their salary. However, with an employer contribution, directors can receive contributions greater than their salary, giving them more money in retirement.

NOTE: HM Revenue & Customs (HMRC) could question the contribution if the total salary and benefit package is excessive for the work undertaken. Contact your accountant if in doubt.

How can I make an employer contribution?

You can make an employer contribution to the Vantage SIPP by cheque, bank transfer and/or Direct Debit. Before applying please ensure you have read and understood the:

Vantage SIPP Key Features (including the Contribution Checklist)

Terms & Conditions

Important Investment Notes

Make an employer contribution