Question:
My Limited Company, of which I am a Director, has just had a very good year and it looks like we will be in profit to the tune of £300,000 for our financial year end 31 March 2025. This will result in a significant Corporation Tax bill. Is there any way that this can be reduced legitimately?
Answer: (For Accountants or Professional Advisers Only)
There are a number of ways that the level of Corporation Tax payable can be reduced but one method that can best be explained by an example is the use of company contributions to personal pensions.
In this particular example:
There are two directors aged 50, with a taxable income below £110,000; The company has a healthy level of cash, and has calculated that it has the ability to spend in excess of £120,000 without disturbing its cash flow, with profits in excess of £250,0000, therefore will pay the main rate of 25% corporation tax.
Company contributions made into each of the director’s personal pensions of £60,000 will reduce the profit of the company by £120,000 resulting in a Corporation Tax saving of £22,800 (assuming a Corporation Tax rate of 25%). It is important to note that any contributions will need to be paid by 31 March 2025 in order to qualify for the corporation tax deduction.
In addition both directors will now have an additional £60,000 in their pensions and, as these have been paid directly, not as salary, the directors will have paid no Income Tax or National Insurance contributions on monies used to fund the pension contributions.
Simple but effective. There are of course other solutions to help you manage your corporation tax liabilities and we would be pleased to discuss them with you.
Please note the current annual limit is £60,000 per client. If they wish to contribute more the "carry forward" rule may apply, otherwise they will incur a tax penalty.
If you would like to discuss this or other methods of saving tax, please feel free to contact: Folwealth.com (Abi Ladele) on 07950352993 or This email address is being protected from spambots. You need JavaScript enabled to view it..
*Pensions are a form of investment therefore capital can be at risk depending on where it is investment. Pensions can be and are subject to legislative and taxation changes therefore current pension benefits may change in the future. The information contained on this page do not constitute advice. You should not act upon the information without first seeking independent financial advice.
