Understanding employer pension contributions
Up to 30 CPD minutes
Module description
Introduction
Employer pension provision is a valuable benefit for employees and also an extremely tax efficient way for business owners to extract profits from their business. Understanding when the business will benefit from tax relief on employee contributions and how it is provided is essential for advisers who have business owning clients.
This module should take around 30 minutes to complete. Once you have completed all the sections there is a short self-assessment quiz to check what you have learned and a CPD certificate for up to 30 minutes can be claimed.
This module should take around 30 minutes to complete. Once you have completed all the sections there is a short self-assessment quiz to check what you have learned and a CPD certificate for up to 30 minutes can be claimed.
Outcomes
On completion of this module you should be able to:
- Describe what limits may apply to employer pension contribution
- Explain the circumstances when employer contributions may not be a valid deduction for corporation tax
- Determine when tax relief has to be spread over more than one year
Learning material
This module looks at how much employers can contribute to their employees’ pensions and what factors may limit the availability of corporation tax relief. It outlines when relief may need to be spread over more than one year.
CPD minutes: up to 30
Read the employer pension contributions guideOpens in new windowCPD minutes: up to 30
Post learning assessment
Question 1
Which of the following statements is TRUE?
a. Employer contributions do not count towards the individual’s annual allowance
b. Employer contributions are paid from net profits (i.e. after corporation tax)
c. The maximum employer contribution is limited by the employee’s earnings
d. There is no upper limit on employer contributions
a. Employer contributions do not count towards the individual’s annual allowance
b. Employer contributions are paid from net profits (i.e. after corporation tax)
c. The maximum employer contribution is limited by the employee’s earnings
d. There is no upper limit on employer contributions
Question 2
Which of the following contributions is NOT wholly and exclusively for the purpose of the trade?
a. A contribution made under a valid bonus sacrifice arrangement
b. Contributions made for a controlling director of an investment company
c. The minimum employer contribution into a workplace pension under auto enrolment
d. 15% employer matching contributions into an employee’s SIPP
a. A contribution made under a valid bonus sacrifice arrangement
b. Contributions made for a controlling director of an investment company
c. The minimum employer contribution into a workplace pension under auto enrolment
d. 15% employer matching contributions into an employee’s SIPP
Question 3
In their last accounting period, ABC plc made total employer pension contributions of £500,000. This year employer contributions have risen to £1.7M. When is corporation tax relief given?
a. All relief given in the accounting period in which the contribution was paid
b. Relief is spread over 2 years
c. Relief is spread over 3 years
d. Relief is spread over 4 years
a. All relief given in the accounting period in which the contribution was paid
b. Relief is spread over 2 years
c. Relief is spread over 3 years
d. Relief is spread over 4 years
Check your answers
Which of the following statements is TRUE?
d. There is no upper limit on employer contributions
d. There is no upper limit on employer contributions
Which of the following contributions is NOT wholly and exclusively for the purpose of the trade?
b. Contributions made for a controlling director of an investment company
b. Contributions made for a controlling director of an investment company
In their last accounting period, ABC plc made total employer pension contributions of £500,000. This year employer contributions have risen to £1.7M. When is corporation tax relief given?
c. Relief is spread over 3 years
c. Relief is spread over 3 years
Any reference to legislation and tax is based on our understanding of United Kingdom law and HM Revenue & Customs practice at the date of production. These may be subject to change in the future. Tax rates and reliefs may be altered. The value of tax reliefs to the investor depends on their financial circumstances. No guarantees are given regarding the effectiveness of any arrangements entered into on the basis of these comments.