Personal contributions

Paying into your Penfold through personal contributions means that you pay from your own personal bank account, after you've received your monthly wage that you've paid tax on. Because you've paid tax on this pension contribution, the government will pay you back the tax you have paid with a 25% tax top up contribution, as a way to incentivise people paying into a personal pension.

It's important to remember that the amount you can get in total from tax top ups is dependant on your individual situation and can change in the future.

Business contributions

Instead, you can pay into your pension by making business contributions through your limited company (not a sole trader business). Paying into your pension this way means that these business/ employer contributions will be offset as a business expense and are therefore not eligible to pay corporation tax. This means that less corporation tax will be deducted from your total company's earnings (dividends). Because you have not paid corporation tax on these business contributions, your contributions will not receive the government's 25% tax top up contribution. 

Please remember that paying into your pension either way is a really great option - and neither is better than the other, it is just a case of what you think is more beneficial for you and your own financial situation.

Read our Self employed pension tax relief explained guide for more information.

If you would like some advise on which one to choose, you may want to reach out to a financial adviser to pick the best option for you.