What is the maximum employer’s contribution?

There’s no maximum employer contribution – employers can pay any amount of pension contributions for their employees.  If employers choose to meet the total minimum pension contribution required by law, the employee doesn’t need to contribute (but they can if they want to).

Remember, employer contributions still count towards the employee’s annual allowance.

To increase your pension contribution for an employee, set up a new worker group with higher employer contribution amounts. Make sure this is also changed in your payroll software.

Tax relief on employer contributions

Employer pension contributions are paid gross and put through the business’ account as an expense. This is then deducted from profits before they’re assessed for either corporation tax (companies) or income tax (self-employed or partners).

Tax relief isn’t automatic and it’s up to the employer’s local inspector of taxes whether the employer receives tax relief on the whole contribution. To qualify for tax relief as an expense, pension contributions must be made wholly and exclusively for the purposes of the business.

HMRC guidance highlights pension contributions generally pass the ‘wholly and exclusively test’ and qualify for tax relief. But if there’s a clear non-trade purpose, tax relief may be restricted or not allowed.

This is a complex subject and more details can be found on the Government’s website.

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