Tackling Corporation Tax: 7 benefits to business owners of a lump sum pension contribution



Business owners need to plan for the tax implications of their business, but it’s not easy.


Corporation tax is a complex area dependent on your company’s legal structure, your business activities and more.


Business Owners – do you want to reduce your Corporate Tax Bill and save for your Future? If the answer is yes, then read on!


If you are a business owner and you are approaching the end of your accounting year, 31st December – this will have particular significance for you (year end for corporation tax purposes). If your business is doing well and is in profit, tax-planning and wealth extraction are important areas for you to consider.

You have a unique opportunity to transfer profits out of your business today and into a tax efficient savings pot for your future.

As a business owner you will be looking at ways of withdrawing profits from your company in the most tax-efficient way possible. This is more commonly known as Wealth Extraction.


What is Wealth Extraction?


Wealth extraction simply means taking profits from your own company and transferring them into your own savings pot. One of the most tax efficient ways of doing this is putting them in your own Pension fund (typically via a Company pension). Essentially you are moving cash out of the business and into your own pot of money which is held in trust for you.

So instead of paying yourself a higher salary or a bonus, your company pays into your pension helping you to build up a substantial fund for your retirement. You won’t need to pay extra income tax and there are no benefit-in-kind implications for you.

If a company wants to make a pension payment for a Director or employee, the payment may be offset as a business expense against your corporation tax liability. The payment must be made before the end of your tax year in which the deduction is claimed.

Your company can fund your pension pot up to a maximum lifetime limit of €2 million once you have the required salary and years’ service.

Doing this can make real financial sense, in that your retirement income isn’t entirely reliant on the future success of your business!


What are main benefits of investing a lump sum to my pension now?


Here are some of the key benefits to you and your business:

– The company can usually make much higher contributions to a pension plan than if you contributed personally (once within Revenue maximum funding limits).

– Company contributions can normally be fully offset against Corporation tax.

– No Benefit in Kind (BIK) applies to contributions made by your company to a Company Pension Plan plan.

– Your funds grow tax-free during the investment period.

– At retirement, you are entitled to a portion of your pension fund tax-free (subject to Revenue rules).

– Possible early access to funds from age 50 – subject to conditions – you must surrender your shareholding and sever links with your business.

– Contributions can be varied year to year and are not fixed in any way, to suit finances of your company and your own personal finances.

It really is one of the most tax-efficient ways of extracting wealth from your company!


Start now

As a business owner you work hard today in order to provide yourself and others that depend on you with a better future. Through a Company pension plan you can provide yourself with an income that is independent from your business. This will ultimately give you more options later on such as – continue running business, pass it on to next generation or sell the business.

The generous funding limits for Company Directors in Ireland may change in the future, so if you want to get cash off your company balance sheet and in to your own balance sheet before the year-end, don’t delay and act now!

Reach out for assistance on 061 – 412388 to see how we can help you to extract wealth from your company.