If your company is like most in Ireland, its accounting year ends in December. And that means now’s the time to think about making a special contribution to your company pension – especially if you’ve experienced a strong trading year.
Read on to find out what’s good about topping up a company pension before year end, how to do it, and why you need to act promptly.
What’s all the fuss about?
Unlike personal payments to pensions, company contributions are not governed by the usual tax-relief limits. In practice, this means that many companies can make substantial contributions to the pensions of owner-directors and other key employees.
Typically, these payments can be claimed as a deduction against corporation tax, reducing the company’s tax bill.
And because the pension payments isn’t part of the individual’s income, it’s not subject to income tax, PRSI, or USC.
How do I get a piece of the action?
First, you’ll need a company.
Sounds obvious, and it’s a given if you’re an owner-director or senior management in a medium-sized or large business. But if you’re a freelancer, a contractor or otherwise self-employed, it might also apply.
For example, if you use a limited company or an umbrella company for your work, you can also make employer contributions to your pension directly from your company.
Next, you’ll need a company pension scheme or a PRSA. (You can read all about company pension schemes here, and PRSAs here).
The company can either top up an existing scheme, or set up a new one and fund it promptly – we can help sort that.
Time is of the essence
The tax treatment of company payments to pension plans is a little different from the arrangements for individuals topping up their pensions – who still have several months to top up.
To take advantage of the corporation tax deduction, the payment must be made before the end of the company’s corporation tax year. A company is not allowed to backdate pension payments for directors or employees into a company’s previous tax year.
So now’s the time to take a hard look at your 2023 numbers. If looks like you could save corporation tax and boost your pension provision by topping up with an employer contributions, we’d love to help.
