- Employers can make contributions that take the total value of annual contributions to your pension above the value of your earnings
- This is particularly useful if you are self-employed
- The contribution has to be of a reasonable level relative to your role in the company
The amount you can contribute to a pension while still receiving tax relief is usually restricted by the annual allowance of £60,000 or the value of your earnings in that tax year, whichever is less. But if you earn less than £60,000 a year, there are some circumstances in which your employer can tax efficiently make a pension contribution that takes the total value of contributions above the value of your earnings that year. This can be particularly useful if you are self-employed, or if your earnings and pension contributions tend to fluctuate.
If you own your business, employer pension contributions can be offset against corporation tax as a business expense. And contributions can be a more cost-effective way to remunerate employees or yourself, for instance if you’re a director of a limited company and pay the contributions into your own pension fund as an employer contribution. This is because, unlike with a salary, there are no employer National Insurance contributions to pay on pension contributions.