If you are trying to reduce your tax bill, you may be thinking about making pension contributions in order to benefit from the tax relief that comes along with them. For most of our clients there are three types of pension contributions that may be relevant:

• NHS superannuation
• Personal pension scheme
• A company-operated pension scheme

NHS superannuation (also known as the NHS pension)

If you are a self-employed dentist that does NHS work, you may very well have superannuation contributions deducted from your pay when the practice you work at calculates the monthly amount you are owed.

When your tax is calculated, your superannuation contribution is deducted from your employment and/or self-employment income. This means that you cannot claim tax relief on more contributions than you have earned.

As we complete your personal tax return, we add back your superannuation to your total income received in the year as the contribution amount needs to be included in a different section. If we did not add them back to your income, you would receive tax relief twice.

Personal pension scheme

When you contribute to a personal pension, your pension provider will claim tax relief from the Government at a rate of 20%. The gross amount, as in your contribution plus the Government’s contribution, are entered on your personal tax return, but are treated differently to superannuation contributions. Instead of being deducted from your taxable income like superannuations above, they increase your personal allowance. The result of this is that more of your income is taxed at the basic, and less at the higher rate.

It is worth noting that there is an annual allowance of £60,000, assuming that you have no unused allowance from the previous 3 tax years, which is the most you can save in your pension in a tax year before you have to pay tax. If your adjusted income is over £260,000 then this annual allowance will be reduced.

Company-operated scheme

A company can make pension contributions to a scheme for its employees, but there is no grossing up with this method. If the company pays £100 into the scheme, then the total amount contributed will remain at £100, rather than the £120 as above.

However, the advantage of a company making pension contributions instead of the individual is that they are tax deductible for corporation tax purposes. This means there is a tax saving of between 19% and 25%. That said, contributions that are made through a company also do not affect your personal tax.

If you would like more information about this, or guidance on which type of contribution may be right for you, please get in touch.