Good morning 👋

Like many business owners you might be thinking about some last minute tax planning ahead of both your company year end and the tax year end.

If you've read my stuff for a while you'll know that I'm a big fan of company pension contributions for business owners. Pay the contribution through the company, it comes out before corporation tax, no personal tax or NI to pay, everyone's happy.

For a lot of the business owners I work with it's one of the most straightforward wins going.

But sometimes it pays to make a personal contribution as well. And this is one of those sometimes.

Here's a situation I've been working through with someone recently...

Minimum salary, dividends on top, and a healthy regular employer pension contribution already going in. On paper, they're sorted. Except the dividend income has crept above the basic rate threshold, which means a chunk of it will be getting taxed at the higher dividend rate rather than the lower one.

The employer contribution doesn't help with that, because it's the company making it, not them personally.

The fix was straightforward once we looked at it. A personal pension contribution extends your basic rate band. So if your dividends are pushing you into higher rate territory, the right sized personal contribution could pull you back down.

You get the tax relief on the contribution, and the dividend tax drops to the lower rate. Both things happen at once.

The only limit to be aware of: you can't contribute more than your gross salary as a personal contribution. So it probably won't work if you're paying yourself a token salary of a few thousand. But for anyone on a reasonable director's salary with dividends on top, it's worth doing the maths.

There's a second situation where this is useful too. If you're thinking about paying yourself a larger dividend before the tax year ends, the same logic applies. A personal pension contribution this side of April 6th could take the sting out of it.

If this tax year is too late for you to do anything, don't worry about it. But if you've read this and thought "that could apply to me", make a note. February is the time to start thinking about it, not late March.

And if you want someone to work with and help you run the numbers before next year end, you know where I am.

Have a great week :)

👉 Book a call with me here (or if you prefer, email [email protected] or call one of my team on 0117 9629696).