Part 4

We are often asked by our clients how they can best extract profits from their company without falling foul of the dreaded Tax Man.

Completing company accounts is not and should never be just about ticking the compliance box for the company, it should also be about the owner’s aspirations.  That is why during our regular reviews with our clients we look at where the business is, there the Director/Owner is, what they want to achieve and how we can help them reach those goals.

In this instalment we look at withdrawing funds through – company pension funds.

There are many types of company pension schemes but in this instalment, we look at the small, self-administered scheme (SSAS) as these are better suited to directors of SME companies.

When setting up a SSAS with an authorized provider such as an insurance company or a pension consultant you can qualify for tax relief from HMRC.  And another benefit of having a SSAS is that the scheme can loan money back to the company, subject to conditions, to invest in the business.  Therefore, not only does it meet the owner managers personal pension needs it can also provide financial benefits to their company.

In our experience it is always advantageous to use a registered pension consultant to ensure that the tax reliefs available meet the qualifying conditions.

Many SME company directors have fallen foul of unregistered pension schemes with the promise of significant tax savings but beware the government has introduced tough anti-avoidance rules to stop the tax abuse of such schemes.

The most common tax relief available to a SSAS is that your company can make contributions to your pension scheme in addition to any salary that you are also paid.  This reduces the company’s taxable profit legitimately.

SSASs are bound by the same contribution rules as other registered schemes with an annual allowance of £40,000 during the 2021/22 year and the maximum you can hold in the fund is £1,073,100, this is known as your “lifetime limit” (LTA).  Details of previous years allowances can be found HERE.

Whilst the individual has an annual allowance, the company can pay as much as it would like if it were considered “wholly and exclusively” for the purposes of the businesses trade, but all contributions count towards the LTA.

There are occasions when a company can make higher contributions and we would always advise that you discuss it with your pension consultant and your accountant.

It was mentioned earlier that the pension scheme can loan funds to the company, it might be useful to know that a SSAS can also own property.  If your company currently rents their business space and there are aspirations to own in the future, the pension fund can purchase a property and lease it back to the company, subject to certain conditions.

If you would like some advice surrounding this matter and you have not had this conversation with your accountant, we would be happy to have a FREE no obligation conversation with you, CONTACT US and we can arrange a video or telephone call at a convenient time for you.