SSAS Pension: How Does a SSAS Reduce Corporation Tax? Illustrated

SSAS Pension: How Does a SSAS Reduce Corporation Tax? Illustrated

SSAS stands for Small Self-Administered Pension Scheme and it has to be set up by an actively trading Company. So, what does this look like?

How to Set Up a SSAS Pension Scheme

First, you have your trading Limited Company. It’s active and, let’s assume, the two directors are husband and wife. The directors have spoken to us and decided they want to set-up a SSAS, which is a pension scheme of the Company for the benefit of its chosen members. 

As part of setting up the SSAS, we put the husband and wife directors into the SSAS as members and they are also member trustees. The great thing about SSAS is that the members and the member trustees have complete control over what goes on inside SSAS. We find many company directors love this about SSAS, compared to other pension structures where you can lose a lot of control.

SSAS Pension Tax Relief: How Does SSAS Help Control Your Corporation Tax Bill?

Well, contributions to SSAS are an administrative expense of the business. Therefore, they are tax deductible. Any contributions you make to SSAS, of course, must pass the test that they are wholly and exclusively for the purpose of the business and directors. Generally, this isn’t a problem. 

Making Company Contributions into the SSAS

The great thing about company (SSAS) contributions is they are not related to the amount of PAYE you take home. It’s probably worth explaining that if you put personal contributions into a SSAS, or indeed any pension, you cannot put in more contributions than you are drawing as PAYE income. 

So, as an example, if your salary is £30,000 the maximum amount you can pay into a pension in any one year is £30,000, despite the allowance being £60,000. So, personal contributions are related to your income.

However, SSAS contributions are not related to your income. This is a huge benefit and here’s why: in this example, we have a Limited Company, with a husband and wife team. Let’s say they are making contributions for the current tax year (the current tax year allowance is £60,000 per person). So, their company decides to contribute £60,000 for each director. 

So, we end up with £120,000 being paid in by the company as a tax deductible expense. Therefore, reducing the corporation tax bill by around £30,000.

Making Contributions Before the Company’s Year End

It’s worth noting that you do need to make contributions into the SSAS before the company’s year end. If you go over the year end, then the contributions made will fall into the next trading period. 

It is, of course, possible to extend your trading period by up to six months, providing you haven’t done that in the last five years. We recommend that you speak to your accountant. They will be able to help you with that particular aspect if you are running close to the company’s year end. 

SSAS Pension Contributions and the Fiscal Year

You also need to be mindful that contributions relate to the fiscal year. So, the tax year runs from April to April and the maximum you can contribute during that time is £60,000. So, you can be in an advantageous position. 

So, let’s say that your company year ends in June. You set-up the SSAS in January. In this example, you could potentially contribute £120,000 for the tax year in which you established the SSAS (January) and then you could potentially contribute another £120,000 after the start of the fiscal year (anytime after the 6th of April).

So, there is one year where you can potentially take two bites of the cherry when it comes to contributions.

If the company makes £120,000 in contributions and, assuming they pay corporation tax at the 25% rate, then this is going to give you a corporation tax saving of £30,000. I’m sure you would rather have that money in your pocket, or certainly in the company’s pocket, than in the Exchequer. So, as you can see, we’ve just added £60,000 to the SSAS on behalf of the husband and wife team and reduced their corporation tax bill by £30,000 in the process. 

Open a SSAS Today

If you want to partake in the benefits of SSAS, get in touch with our team to discuss opening a SSAS. Book a call today and let’s get started.

Learn More About SSAS

Are you new to SSAS? Perhaps you want to learn more before you commit? We know that making financial decisions can be nerve-wracking. 

Here at One Crown Pensions, we provide the best SSAS resources available. Discover all you need to know about SSAS in our SSAS Video Hub or get in touch with our team to discuss your requirements. We’d be happy to help.