Paying contributions into a registered pension scheme can be an effective way of extracting profits from a family company.
Employer contributions can be made without limit, although they count towards the annual allowance (£40,000 for 2014/15). Contributions made in excess of the annual allowance attract a tax charge, although to the extent it is unused, the annual allowance can be carried forward up to four years.
It should be noted that HMRC may challenge a corporation tax deduction if they feel the payments are excessive.
Example:
Bill and Louise are directors of their family company. They each have a registered pension scheme.
In 2014/15 the company makes pension contributions of £20,000 each to their registered pension scheme. The £40,000 paid by the company is deductible for corporation tax purposes.
You might also be interested in